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171    MD3 


QUESTIONS  OF  THE  DAY. 


& 


LIBRARY 

OF   THK 

UNIVERSITY  OF  CALIFORNIA. 


Received, C^C^ ^ ,  i8f ' 


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the  poor    and  insane,    the  management  of    the  public"  lands,    etc. 

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7 — Spoiling  the  Egyptians.  A  Tale  of  Shame.  Told  from  the 

British  Blue-Books.  By  J.  SEYMOUR  KEAY.  Octavo,  cloth,  75 
8 — The  Taxation  of  the  Elevated  Railroads  in  the  City  of  New 

York.  By  ROGER  FOSTER.  Octavo,  paper  '.  .  .  25 
9 — The  Destructive  Influence  of  the  Tariff  upon  Manufacture  and 

Commerce,  and  the  Facts   and   Figures  Relating  Thereto. 

By  J.  SCHOENHOF.  Octavo,  cloth,  75  cents  ;  paper,  .  .  40 
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BOWKER.     Octavo,  cloth       .......          75 

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States.       A   Study  in   Economic   History.     By   F.    W.    TAUSSIG. 

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17 — Heavy  Ordnance  for  National  Defence.  By  WM.  H.  JAQUES, 

Lieut.  U.  S.  Navy.     Octavo,  paper       .....          25 


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QUESTIONS    OF  THE  DAY. 


18— The   Spanish  Treaty  Opposed   to  Tariff  Reform.     By  D.   H. 

CHAMBERLAIN,    JNO.    DEWITT  WARNER,   GRAHAM  McADAM,  and 

J.  SCHOENHOF.     Octavo,   paper    ......         25 

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cloth  . 75 

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Lieut.  U.  S.  Navy.  Octavo,  paper,  illustrated  ...  50 
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GIBBONS.     Octavo,  paper      .......         25 

34 — Torpedoes  for  National  Defence.  By  WM.  H.  JAQUES,  Lieut. 

U.  S.  Navy.-  Octavo,  paper,  illustrated  ....  50 
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RAILWAY  PRACTICE 


ITS  PRINCIPLES  AND  SUGGESTED  REFORMS 
REVIEWED 


BY 


E.  PORTER  ALEXANDER 


NEW  YORK  AND  LONDON 

G.    P.    PUTNAM'S    SONS 

&|j£  Ittutkerbockw  ^im 
1887 


COPYRIGHT  BY 

E.  PORTER  ALEXANDER 

1887 


Press  of 

G.  P.  PUTNAM'S  SONS 
New  York 


RAILWAY   PRACTICE 


The  literature  of  that  very  considerable  and  important 
problem  first  called  by  Mr.  Adams  the  Railway  Problem, 
has  recently  been  enlarged  if  not  enriched  by  two  proposed 
solutions.  The  one  is  offered  by  Mr.  T.  F.  Hudson,  in 
his  volume  called  "  The  Railways  and  the  Republic." 
The  other  by  Prof.  R.  T.  Ely,  in  Harper 's  Magazine  for 
July,  August,  and  September.  A  third  proposed  solution 
has  long  been  before  the  public  in  the  Reagan  bill, 
which  has  twice  passed  the  Hpuse  but  has  failed  in  the 
Senate. 

As  the  three  solutions  disagree  radically  in  principle, 
and  are  at  odds  with  the  methods  of  reform  which  the 
railroad  managers  themselves  are  endeavoring  to  put  into 
operation,  it  is  clear  that  some  confusion  exists  in  the 
premises  from  which  the  different  parties  start.  I  propose 
to  examine  these  premises  briefly,  and  see  if  any  such 
confusion  cannot  be  removed. 

Surely  after  fifty  years  of  experiment,  and  a  develop- 
ment covering  all  civilized  countries,  there  must  be  to-day 
a  few  principles,  settled  by  actual  test,  and  put  beyond 
question  or  dispute,  making  what  we  might  call  the 
present  state  of  the  science  of  railway  management.  If 
there  are  such,  on  which  we  can  firmly  ground  ourselves, 


2  Railway  Practice. 

the  discussion  of  the  remedies  for  abuses  becomes  much 
more  simple.  I  will  take  up  singly  the  most  important 
of  the  underlying  questions  which  control  the  railway 
practice  of  to-day,  and  indicate  and  illustrate  very  briefly 
the  conclusions  upon  them  which  have  been  reached,  and 
recognized  as  final,  by  the  universal  practice  of  all  coun- 
tries in  which  railroads  exist,  whether  operated  by  private 
parties  or  more  or  less  under  governmental  control. 

I  cannot  pretend  to  treat  these  questions  exhaustively 
within  my  limits,  but  only  to  bring  them  clearly  in  the 
same  field  of  view  with  the  reforms  proposed  by  Mr. 
Reagan,  Mr.  Hudson,  and  Mr.  Ely.  If  my  readers  will 
accept  what  I  shall  thus  lay  down  as  "  the  state  of  the 
science,"  or  its  acknowledged  principles,  it  will  be  easy 
to  see  how  the  new  measures  proposed  square  with  them 
and  with  each  other. 

If  my  readers  are  not  satisfied  with  my  statement  of 
these  principles  I  can  only  assure  them  that  the  fault  is 
due  to  partial  presentation  only,  and  commend  any  one 
desiring  fuller  information  to  the  admirable  work  of  Prof. 
A.  T.  Hadley,  of  Yale,  on  "  Railroad  Transportation,"  who 
has  made  a  most  exhaustive  study  of  the  railroad  litera- 
ture and  practice  of  every  nation,  and  presented  it  in  ad- 
mirable and  condensed  form. 

COST   OF  SERVICE. 

One  of  the  principal  points  at  issue  between  theoretical 
railway  reformers  and  railway  managers  is,  whether  freight 
charges  shall  be  based  upon  the  cost  of  the  service  ren- 
dered, or  upon  its  value. 


Cost  of  Service.  3 

Upon  the  answer  to  this  question  will  depend  the  right 
or  wrong  of  nearly  all  freight  classification,  and  of  most 
instances  of  charging  less  for  a  long  haul  than  for  a  short. 
It  is  the  universal  custom  among  railroads  the  world  over 
to  base  their  charges  upon  the  value  of  the  service  rend- 
ered, and  not  upon  its  cost — although  the  latter  would 
seem  to  be  the  safer  plan  if  they  could  only  put  it  in  force. 
It  would  seem  as  impossible  for  a  railroad  which  could 
enforce  this  plan,  ever  to  go  into  bankruptcy,  as  for  the 
hotel  in  Arkansas,  whose  proprietor  charged  each  guest  the 
expenses  of  the  house  since  the  last  one  left,  and  collected 
with  a  shotgun.  But  railroads,  in  common  with  authors, 
doctors,  inventors,  laborers,  lawyers,  manufacturers,  and 
most  other  people  who  have  any  thing  to  sell,  base  their 
prices  upon  the  value  of  what  they  offer,  rather  than  upon 
its  cost.  And  indeed  no  other  basis  of  price  for  railroad 
services  is  practicable,  for  the  cost  of  rendering  them  is  by 
no  means  the  simple  matter  of  calculation  which  it  is  often 
assumed  to  be.  The  cost  of  any  particular  act  of  trans- 
portation cannot  even  be  averaged  at,  except  under  the 
most  arbitrary  assumptions.  But  few  of  any  railroad's 
total  expenses  can  be  divided,  and  assigned  to  passenger, 
mail,  express,  and  various  kinds  of  freight,  except  by  the 
vaguest  guesswork.  Results  so  arrived  at  would  be  as 
unreliable  as  the  distance  to  the  moon,  estimated  by 
measuring  to  the  top  of  the  highest  mountain,  and  guess- 
ing at  the  rest. 

The  case  of  a  railroad's  estimating  the  cost  of  doing  a 
particular  piece  of  business  is  not  unlike  that  of  a  lawyer 
estimating  the  cost  of  giving  an  opinion.  He  has  fitted 


4  Railway  Practice. 

himself  for  that  particular  business,  and,  as  it  were,  in- 
vested his  life  in  the  education  and  experience  necessary 
to  transact  it.  His  time  is  good  for  nothing  else,  and,  if 
he  is  not  called  upon  for  opinions,  will  be  worthless  to 
him.  He  can  therefore  render  opinions  up  to  a  certain 
limit  almost  without  cost,  except  for  stationery.  So  a 
railroad  is  a  large  fixed  investment  capable  of  furnishing 
transportation  and  nothing  else.  Up  to  certain  limits  it 
can  always  take  additional  business  without  cost  except 
for  a  very  small  amount  of  fuel.  The  money  it  receives 
for  the  new  business  above  the  small  additional  cost,  is  all 
clear  profit.  It  adds  that  much  to  the  ability  of  the  road 
to  serve  other  patrons  at  low  rates. 

It  seems  indeed  to  be  unjust  discrimination  for  a  railroad 
to  charge  different  rates  for  services  that  apparently  cost 
it  the  same.  It  is  discrimination,  but  when  the  value  of 
the  service  is  fairly  considered,  the  injustice  is  but  ima- 
ginary, and  the  results  are  beneficial  even  to  those  inter- 
ests that  seem  to  be  discriminated  against. 

In  mother  form  this  principle  is  sometimes  expressed 
in  the  phrase  that  railway  charges  must  be  based  upon 
"  what  the  traffic  will  bear."  This  phrase  has  been  as 
objectionable  to  some  railway  theorists  as  a  red  flag  is 
supposed  to  be  to  a  bull.  Perhaps  legitimately  so,  because 
the  expression  is  vague  and  might  be  held  to  cover  extor- 
tionate charges.  As  Prof.  Hadley  remarks,  it  has  been 
interpreted  to  mean,  "  what  the  traffic  will  not  bear." 
But  in  fact  this  expression  is  used,  not  to  justify  ex- 
cessive charges,  but  rather  to  excuse  the  acceptance  of 
rates  which  are  lower  than  the  average,  and  which  thus 


Discriminations.  5 

appear  to  discriminate  in  favor  of  some  particular  in- 
terest. 

Briefly,  the  principles  upon  which  railway  tariffs  must 
be  formed  may  be  summarized  as  follows :  They  must 
not  exceed  a  reasonable  profit  to  the  carrier  as  a  maxi- 
mum ;  and  may  be  reduced  to  what  the  traffic  will  bear 
as  a  minimum,  if  it  does  not  involve  the  carrier  in  actual 
and  permanent  loss. 

Between  these  limits  they  should  be  adjusted  in  pro- 
portion to  value  of  service  rendered. 

It  has  been  suggested  that  railroads  should  be  for- 
bidden by  law  to  make  rates  so  low  as  to  yield  no  profit 
at  all,  or  perhaps  to  involve  a  loss.  Any  legal  restriction 
would  seem  to  me  very  unwise,  for  two  reasons.  First, 
the  point  at  which  profit  ends  and  loss  begins  cannot  be 
definitely  determined,  because  cost  can  never  be  accu- 
rately fixed,  as  explained  before.  Second,  a  traffic  might 
yield  a  small  direct  loss,  but  indirectly  a  greater  gain,  by 
building  up  new  interests,  or  sustaining  old  ones  through 
periods  of  depression.  Mines,  mills,  and  manufactories 
often  find  it  "  profitable  "  to  run  temporarily  at  a  loss, 
and  railroads  may  do  the  same. 

DISCRIMINATIONS. 

When  rates  are  based  upon  value  of  services  rendered 
we  necessarily  have  discriminations.  In  their  infancy, 
railroads  attempted  to  base  their  charges  simply  upon 
the  ton-mile  of  service  rendered. 

Experience,  however,  and  the  demands  and  opportuni- 
ties of  rapidly  expanding  commerce  and  manufactures, 


6  Railway  Practice. 

not  only  taught  but  enforced  the  adoption  of  the  value 
of  service  as  the  true  basis  of  charges. 

The  same  may  be  said,  in  fact,  of  the  adoption  of  all 
the  prominent  features  of  modern  railway  practice.  They 
have  come  about  from  necessity,  not  of  choice,  but  actually 
against  it.  Like  Topsy  they  are  not  creations  but  devel- 
opments. Their  adoption  was  under  the  constraint  of 
laws  which,  whether  understood  or  not,  will  always  make 
themselves  obeyed. 

With  the  adoption  of  this  basis  for  tariffs,  it  became 
possible  for  railroads  to  add  enormously  to  the  volume 
of  their  freights  by  transporting,  in  addition  to  ordinary 
merchandise,  coal,  stone,  lumber,  and  many  cheap  and 
heavy  articles  which  could  not  afford  to  pay  average  rates. 
Lower  rates  upon  such  articles  were  the  earliest  discrimi- 
nations, but  the  results  have  justified  the  practice,  and 
brought  about  in  the  end,  (even  for  the  high  classes  of 
merchandise  which  seem  to  be  most  discriminated 
against,)  much  lower  rates  than  could  ever  have  existed 
without  the  discrimination. 

Such  discriminations  have  resulted  in  freight  classifica- 
tions which  grow  more  and  more  complex  as  traffic 
assumes  larger  proportions,  and  embraces  more  and  more 
articles  in  competition  with  each  other.  As  might  be 
expected,  classifications  vary  greatly  in  different  coun- 
tries, and  often  even  in  different  sections  of  the  same 
country,  as  they  gradually  force  themselves  upon  rail- 
road managers.  Those  in  the  United  States  are  generally 
more  complex  than  those  in  European  countries. 

It  is  doubtless  in  part  due  to  this  that  our  average 


Discriminations.  7 

rates  are  lower  than  European  rates,  for  in  cost  of 
materials  and  labor  their  roads  can  be  operated  more 
cheaply  than  ours,  and  they  serve  denser  populations. 

It  is  plainly  a  task  of  much  delicacy  and  difficulty  to 
adjust  the  comparative  rates  for  the  enormous  variety  of 
articles  which  must  be  transported.  But  the  same  com- 
mercial necessities  which  impose  the  task  will  guide  to  a 
gradual  solution  of  it  within  reasonable  limijts. 

The  discriminations  which  have  worked  out  such  favor- 
able results  in  freight  traffic,  produce  equally  favorable 
ones  in  passenger,  as  far  as  they  can  be  applied.  There 
are  more  difficulties  in  their  application  to  passenger 
traffic  in  this  country  than  there  are  in  Europe.  Conse- 
quently they  have  not  been  carried  so  far,  and,  as  a 
result,  our  average  passenger  rates  are  higher  than  those 
of  Europe. 

The  available  methods  of  making  such  discriminations 
are  by  commutation  tickets,  and  cars  and  trains  of  differ- 
ent classes.  Their  results  have  been  most  encouraging 
as  far  as  tried,  and  there  is  still  room  for  progress. 

If  it  were  only  possible  to  apply  these  methods  upon 
the  street  railroads  in  populous  cities,  it  is  evident  that 
its  results  would  be  greatly  beneficial,  not  only  to  the 
company  but  to  the  public. 

If  it  were  practicable  to  transport  upon  these  cars,  for 
one,  two,  or  three  cents,  a  large  class  of  persons  who  can- 
not afford  to  pay  five  cents,  the  profits  of  the  companies 
would  soon  be  raised  to  a  point  which  would  enable  them 
to  reduce  even  their  five-cent  fares. 

The  public   benefit  of  the  lines,  too,  would  be  enor- 


8  Railway  Practice. 

mously  extended.  The  prosperity  which  will  attend 
such  an  application  of  the  principles  of  discrimination 
will  doubtless  some  day  induce  efforts  to  overcome  the 
difficulties  in  the  way. 

Closely  akin  to  discrimination  between  articles  is  that  of 
discrimination  between  localities,  or  the  giving  of  lower 
rates  to  competitive  points.  Discriminations  in  classifica- 
tion result  from  the  fact  that  the  same  service  has  differ- 
ent values  when  rendered  to  different  articles.  Discrim- 
inations between  places  result  from  the  fact  that  the 
same  service  has  different  values  in  different  places.  This 
difference  is  almost  universally  the  result  of  natural 
features  or  geographical  locations.  The  business  of  a  rail- 
road is  simply  the  sale  of  rapid  transportation.  Slow  but 
cheap  transportation  may  be  had  between  many  locali- 
ties by  water,  and  still  slower  and  more  expensive  trans- 
portation may  be  had  by  horses  and  wagons  almost  every- 
where. To  those  already  enjoying  water  transportation, 
transportation  by  rail  offers  comparatively  few  advantages, 
and  they  can  only  afford  to  pay  a  small  sum  for  it.  Na- 
ture has,  so  to  speak,  discriminated  in  their  favor,  and 
given  them  what  we  may  call  natural  transportation.  But 
she  has  discriminated  against  inland  places,  and  left  them 
dependent  entirely  upon  artificial  transportation,  by  horse 
or  man  power,  slow  and  expensive.  Hence  the  service 
which  the  railway  renders  its  inland  customer  is  far  more 
indispensable  and  valuable  to  him  than  that  rendered 
those  who  enjoy  natural  transportation,  and  he  can  afford 
to  pay  more  for  it.  In  fact,  the  railroad  is  built,  in  gen- 
eral, only  for  the  service  of  the  inland  party,  and  it  sells, 


Discriminations.  9 

as  it  were,  its  surplus  power  to  the  maritime  party  for 
any  price  it  will  bring.  An  example  will  illustrate : 
New  York  and  San  Francisco  have  always  enjoyed 
water  transportation,  for  freights  from  the  one  to  the 
other,  slow,  but  very  cheap.  No  one  would  ever  dream 
of  building  a  railroad -between  those  cities  for  the  sake 
of  the  through  business  it  could  get  in  competition  with 
the  ocean.  But  between  them  lie  wide  stretches  of  lands 
against  which  nature  has  discriminated  in  the  matter 
of  transportation,  while  endowing  them  with  great  and 
varied  wealth  in  agricultural,  mineral,  and  other  resources. 
Her  discrimination  was  so  heavy  that  only  narrow  mar- 
gins of  this  vast  territory  could  be  utilized  and  developed 
with  ordinary  land  transportation.  To  overcome  this 
natural  discrimination,  railroads  were  built  into  the  in- 
terior in  every  direction.  With  their  gradual  improve- 
ment in  machinery  and  in  methods  of  work,  they  have 
pushed  into  the  remotest  sections,  and,  making  connec- 
tions in  each  direction,  at  last  we  have  through  lines  from 
New  York  to  San  Francisco. 

As  the  railroads  advanced,  they  enormously  reduced 
the  discriminations  of  nature  throughout  this  inland  ter- 
ritory. Thirty  years  ago  it  cost  over  a  dollar  a  pound  to 
carry  from  New  York  machinery  and  tools  to  work  the 
mines  of  Utah,  and  the  trip  consumed  the  whole  summer, 
during  which  the  purchaser  lost  the  use  of  his  money. 
Now  the  trip  requires  but  two  weeks,  or  less,  and  the  rate 
is  about  two  cents.  Comparing  these  rates,  and  consider- 
ing the  character  of  the  present  service  as  compared  with 
the  old,  it  is  not  an  exaggeration  to  say  that  the  railroads 


IO  Railway  Practice. 

have  removed  about  ninety-nine  one-hundredths  of  the 
discrimination  against  Utah  which  nature  ordained  in 
surrounding  her  with  deserts  and  mountains. 

When  the  railroad  connection  is  at  last  complete  to 
San  Francisco,  the  question  arises  at  what  rate  will  it 
take  freight  between  San  Francisco  and  New  York?  If 
the  railroad  manager  could  control  the  question,  he  would 
doubtless  say  that  two  cents  being  the  rate  from  New  York 
to  Utah,  about  two  thousand  five  hundred  miles,  at 
least  two  and  a  half  cents  should  be  charged  to  San  Fran- 
cisco— eight  hundred  miles  farther.  But  San  Francisco  has 
always  enjoyed  water  transportation,  and  can  get  her  freight 
from  New  York  by  water  at  less  than  a  half  cent  per 
pound.  For  increased  dispatch,  a  shipper  will  pay  the 
railroad  perhaps  a  cent,  or  a  cent  and  a  quarter,  on  certain 
classes  of  freight.  That  price  is  then  all  that  rapid  trans- 
portation between  New  York  and  San  Francisco  is  worth, 
and  the  railroad  must  sell  at  that  price  or  not  at  all.  If 
that  price  is  more  than  the  additional  outlay  involved  in 
doing  it,  as  against  leaving  it  alone,  it  is  profitable  to  the 
railroad,  and  the  business  is  moreover  advantageous  to 
the  whole  inland  community  served  by  the  railroad.  For 
it  adds  to  the  number  of  men  employed  along  the  line, 
and  contributes  to  the  dividend  and  interest  account  of 
the  railroad,  and  the  more  prosperous  the  road,  the  lower 
its  local  rates  may  be  made. 

Plainly  the  only  limit  at  which  the  railroad  should  stop 
competing  for  through  freight  is  at  the  additional  cash 
outlay  for  doing  it.  That  is  the  simple  common-sense  of 
the  question.  Railroads  must  and  should  compete  at  com- 


Discriminations.  1 1 

peting  points  down  to  a  limit  which  is,  not  the  average 
cost  of  doing  all  their  business,  but  the  extra  cost  of  that 
special  additional  business. 

We  have  illustrated  by  the  case  of  New  York  and  San 
Francisco,  but  the  principle  is  the  same  in  all  other  cases, 
and  a  fact  not  generally  appreciated  is,  that  it  is  the 
competition  of  the  water  routes  that  causes  even  the 
inland  discriminations  and  competitions,  so  generally 
ascribed  only  to  the  folly  and  perversity  of  the  railroads. 
A  lowering  of  the  rate  on  grain  by  lake  and  canal  from 
Chicago  to  New  York,  for  instance,  will  reduce  the  price 
of  grain  at  Charleston  and  Savannah,  which  are  supplied 
partly  from  New  York  by  water  and  partly  by  direct  rail 
lines  from  the  west  through  Atlanta  and  Augusta.  This 
direct  rail  line  must  then  either  lose  all  its  Charleston  busi- 
ness or  accept  lower  rates  upon  it.  This  involves  a  dis- 
turbance of  equilibrium  between  that  city  and  interior 
markets  which  compete  with  it  as  a  distributing  centre. 
To  protect  their  business  the  railroads  are  compelled  to 
give  competing  rates  to  a  greater  or  less  extent  to  these 
interior  distributing  markets,  and  the  disturbance  rapidly 
spreads  as  far  inland  as  the  Ohio  river.  In  fact,  with  our 
long  railroad  lines,  the  United  States  is  no  longer  a  conti- 
nent, but  a  large  island  cut  in  two  by  the  lakes  and  the 
Mississippi  river.  Our  trunk  lines  have,  practically,  their 
termini  upon  the  water  at  both  ends,  and  most  of  their 
through  business  is  done  in  competition  with  water 
routes. 

A  common  fallacy  in  the  discussion  of  this  subject  is 
the  charge  that  the  lower  rates  given  to  competitive 


12  Railway  Practice. 

points  impose  heavier  burdens  upon  shippers  at  local  and 
non-competitive  points. 

Should  the  rates,  indeed,  at  competitive  points  be  put 
below  the  "  additional  cost  of  new  business  "  the  railroad 
would  lose  money  and  be  less  able  to  afford  low  rates  to 
its  local  points,  but  this  state  of  affairs  never  prevails  but 
in  railroad  wars,  and  is  not  to  be  considered  as  normal. 
Even  in  such  wars  I  have  never  heard  of  a  case  where 
local  rates  were  advanced  to  make  good  losses  on  the 
competitive  business.  It  is  often  charged  that  this  is 
done,  but  the  charge  is  only  on  suspicion  and  without 
proof,  and  by  theorists  unfamiliar  with  railroad  habits  of 
thought  and  action.  But,  even  should  such  injustice 
sometimes  happen,  the  remedy  is  to  be  found  in  the 
checking  of  railroad  wars,  which,  with  their  attendant 
evils,  is  to  be  considered  later.  Generally  lower  rates  to 
competitive  points  not  only  benefit  the  local  shipper  in- 
directly, by  adding  to  the  prosperity  of  the  railway  which 
serves  him,  but  really  every  reduction  of  rates  to  a  com- 
petitive point  is  more  a  direct  benefit  to  the  surrounding 
local  points,  for  which  the  competitive  point  serves  as  a 
distributing  centre,  than  it  is  to  the  latter  itself. 

For  instance,  farmers  in  the  West  receive  for  their 
grain  a  price  which  is  practically  the  New  York  price  less 
local  freight  from  the  farm  to  Chicago,  and  through 
freight  from  Chicago  to  New  York.  For  their  supplies 
from  the  East  they  pay  New  York  prices  plus  through 
freight  to  Chicago  and  local  to  the  farm.  Now  if  the 
through  rate  from  New  York  to  Chicago  is  reduced,  the 
farmer  gets  the  full  benefit  equally  with  the  Chicago  ship- 


Short  versus  Long  Haul.  13 

per.  The  latter,  in  fact,  is  only  the  middleman  whose 
function  is  the  collection  and  handling  in  large  quantities 
of  the  articles  produced  by  and  needed  upon  the  farm  in 
small  quantities.  He  should  simply  pass  the  whole  re- 
duction in  rate  on  to  the  farmer.  If  he  does  not  it  is  not 
the  fault  of  the  railroad,  except  where  rates  are  allowed 
to  fluctuate  rapidly.  Where  rates  remain  steady  the 
benefit  of  the  low  through  rate,  to  the  large  distributive 
centres,  is  very  certain  to  pass  through  the  hands  of  the 
middleman,  and  reach  the  producer  and  consumer. 
Hence,  as  well  as  for  many  other  reasons,  the  great  desira- 
bility of  steadiness  and  uniformity  in  rates. 

SHORT  VERSUS   LONG   HAUL. 

There  are  very  few,  even  among  the  purest  theorists 
upon  railway  matters,  who  have  failed  to  see  the  advan- 
tages accruing  to  all  concerned  from  having  railroads 
compete  with  water  routes,  and  thus  establish  competi- 
tive points  enjoying  rates  cheaper  per  mile  than  the 
locals.  In  other  words,  discrimination  between  places  it 
is  generally  admitted  must  exist.  But  there  is  a  limit 
set  to  such  discrimination  by  many  theoretical  re- 
formers which  is  very  different  from  the  limit  I  have 
above  given.  I  have  stated  that,  to  secure  new  or  com- 
petitive business,  a  railroad  may,  if  necessary,  reduce  its 
rates  down  to  the  "  additional  cost  of  doing  new  busi- 
ness." But  the  limit  of  the  theorists  is  the  local  rate 
charged  to  intermediate  local  points.  If  the  through  or 
competitive  rate  is  reduced  below  that  point,  it  becomes 
a  case  of  the  longer  haul  being  done  for  the  lower  rate. 


14  Railway  Practice. 

» 

No  railroad  practice  or  abuse  has  ever  brought  out  more 
violent  and  indignant  protest  than  this.  The  boasted 
liberties  of  our  country  are  pronounced  a  delusion  and  a 
sham  while  such  practices  exist,  and  the  railroad  mana- 
gers who  make  such  rates  are  compared  to  the  robber 
barons  of  the  middle  ages,  or  the  Czar  of  Russia  and 
oriental  despots  in  general. 

And  it  may  be  frankly  admitted  that  to  a  superficial 
view  the  practice  does  seem  to  be  at  once  arbitrary,  un- 
just, and  unnecessary. 

But  a  consideration  of  the  circumstances  under  which 
such  discriminations  arise  will  entirely  change  their  aspect. 
They  are  not  a  wicked  invention  of  railroad  managers, 
devised  to  favor  or  to  injure  particular  localities,  but  they 
are  simply  the  inexorable  results  of  geographical  facts 
and  the  laws  of  trade,  more  powerfnl  than  railroad  mana- 
gers, czars,  or  despots. 

I  have  shown  above  that  water  competition  first  gave 
birth  to  discrimination,  giving  lower  rates  to  competitive 
points.  The  competition  which  gives  birth  to  such  discrimi- 
nations determines  also  their  sizes,  or  the  extent  to  which 
they  must  go.  What  are  the  rates  to  intermediate  points 
"  has  nothing  to  do  with  the  case."  If  the  competitive 
traffic  cannot  be  obtained  at,  or  will  not  bear,  a  rate  as 
high  as  reasonable  intermediate  locals,  it  must  be  reduced 
below  them.  Actual  figures  will  best  illustrate,  and  it 
seems  important  to  make  this  matter  very  simple,  when 
it  is  so  generally  misunderstood  that  the  Reagan  bill  gets 
an  intelligent  support  largely  because  it  forbids  the  prac- 
tice under  very  heavy  penalties.  It  seems  to  me  impos- 


Short  versus  Long  Haul.  \  5 

sible  that  any  impartial  mind  can  give  it  a  careful  study 
and  fail  to  conclude  that  the  apparent  discrimination  does 
not  injure,  but  really  benefits,  the  very  places  that  seem 
to  be  discriminated  against.  A  single  case  will  serve  as 
an  illustration  of  all,  for  all  result  from  similar  causes. 

I  select,  as  an  example,  the  rates  upon  a  car  load  of 
sugar  from  New  York  to  town  and  cities  averaging  about 
two  hundred  miles  apart,  along  a  line  from  New  York  to 
San  Francisco  via  Chicago.  See  p.  16. 

Table  A  gives  such  a  list.  Opposite  each  town  is  its 
distance  from  New  York,  and  the  rate  per  hundred 
pounds  charged  by  the  all-rail  line  upon  shipments  of 
sugar  in  car-load  lots.  As  classifications  are  not  uniform 
on  all  parts  of  the  line,  or  between  the  rail  line  and  water 
routes,  it  is  necessary  to  select  some  single  article  for 
comparison.  But  for  this  purpose  a  single  article  is  suffi- 
cient and  sugar  is  selected  as  one  largely  transported. 
The  rates  given  are  those  in  force  in  July,  1886.  Peace 
prevailed  generally,  and  tariff  rates  were  maintained 
everywhere  but  to  the  Pacific  coast.  Here,  as  is  well 
known,  for  some  months  a  severe  war  has  been  waged  be- 
tween the  rail  and  water  lines.  The  table  shows  the 
"  tariff  "  rates  to  San  Francisco  which  prevailed  before 
the  war  broke  out,  when  the  rail  lines  pooled  with  the 
Pacific  Mail  and  each  other,  and  also  the  actual  "  war 
rates  "  offered  at  the  time.  I  also  give  the  Chicago  rates 
by  rail  and  lake,  or  one  half  water  ;  and  by  canal  and  lake, 
or  all  water.  An  important  fact  to  note  in  this  connec- 
tion is  that  all  localities  west  of  Chicago  share  equally 
with  that  city  in  her  low  water  rates,  if  they  choose  to  use 


i6 


Railway  Practice. 


TABLE  A. 
RATES  ON  SUGAR  PER  HUNDRED  POUNDS  IN  CAR-LOAD  LOTS. 


From  New  York  to 

•K  «' 
a"3  ^ 

"rt   C 

Graphic  Comparison  of  Rates. 

.  -  a 

W    o 

Harrisburg,  Pa.,  rail 

200 

•15 

Altoona, 

326 

•15 

_ 

Pittbburg,        "       " 

444 

.15 

_ 

Bucyrus,  Ohio,       " 

640 

.21 

•__ 

Hamlet,  Ind.,         " 

840 

•25 

•MHM 

Chicago,  111., 
'  '         lake  and  rail 
"      lake  and  canal 
Clinton,     Iowa,    rail 

942 
1080 

iE~ 

Cedar  Rapids,  la.  " 

1162 

.50 

_«_»».. 

Omaha,  Neb.,          " 

1432 

•59 

^m^m^^^m 

North  Platte.Neb.  " 

1722 

Cheyenne,  Wyo.,  " 

1050 

Green  River,   "       " 

"*•  \7*/ 

2280 

Ogden,  Utah,          " 

2466 

Elko,     Nevada,     " 

2742 

T  nR 

Humboldt    "          " 

2026 

Sacramento,  Cal.     " 

V 

3210 

1.25 

San  Francisco,  Cal., 

J**  i«-' 

Tariff,                 rail 

^2QQ 

1.25 

.87 

Tariff   by  Isthmus 

*          / 

.60 

War  Rate  by  Isth- 

mus     .... 

•  35 

MM^MOT 

Tariff     by       Cape 

Horn  .     .     .     . 

.40 

^-^—> 

War  Rate  by  Cape 

Horn  .     .   -.     . 

.27 

*•***•• 

Short  versus  Long  Haul.  \j 

the  water  routes  east  of  Chicago.  The  all-rail  rate  to 
Green  River,  for  instance,  $2.09  may  be  reduced  9  cents 
by  having  the  freight  shipped  by  canal  and  lake  to  Chi- 
cago for  sixteen  cents,  instead  of  by  rail  for  twenty-five 
cents. 

This  illustrates  the  statement  heretofore  made,  that  the 
low  rates  to  distributing  points  do  not  end  there,  but  are 
passed  on  to  the  local  points  beyond. 

Looking  now  at  the  lines  representing  the  rates,  in  the 
last  column,  the  eye  at  once  detects  every  case  of  charg- 
ing less  for  the  longer  haul,  by  the  line  being  shorter 
than  some  line  above  it,  and  the  reason  why  the  longer 
haul  must  be  taken  at  lower  rates  is  also  plainly  apparent. 

Why  are  the  rates  for  points  west  of  Ogden  less  than 
the  Ogden  rates  ?  Because  if  they  were  greater  no  freight 
would  take  the  overland  route  for  those  points,  but  it 
would  go  around  to  San  Francisco  by  the  Isthmus,  or 
Cape  Horn,  and  come  back  eastward  to  its  destination, 
by  a  short  rail  haul  on  the  Central  Pacific,  for  less  money. 
Those  points  possess  the  natural  advantage  of  being 
nearer  the  ocean  than  Ogden,  and  neither  railroad  official 
nor  law  of  Congress  can  deprive  them  of  it.  And  what 
must  be  the  result  if  the  Reagan  bill  is  passed  and 
the  overland  lines  forbidden  to  take  a  less  rate  on  the 
longer  haul  ?  They  cannot  advance  the  San  Francisco 
rates,  as  they  are  controlled  by  the  water  routes  ;  so  they 
must  either  reduce  the  rates  to  all  interior  points  or  sim- 
ply retire  from  the  San  Francisco  business.  Evidently 
they  will  take  that  horn  of  the  dilemma  which  will  least 
affect  their  net  revenue. 


*8  Railway  Practice, 

Let  us  see  which  that  will  be.  To  reduce  the  offending 
rates  between  Omaha  and  Ogden  to  the  San  Francisco 
rates,  would  be  to  cut  off  the  lines  representing  them  by 
a  vertical  through  the  San  Francisco  rail  rates  as  indi- 
cated. Or,  in  figures,  when  the  railroad  and  the  water 
lines  are  at  peace,  every  rate  above  $1.25  would  have  to 
be  reduced  to  that  figure,  and  when  they  were  in  active 
competition,  every  interior  rate  would  be  reduced  to  87 
cents. 

Now  bear  in  mind  that  every  cent  of  this  reduction  is 
a  loss  out  of  net  revenue,  for  the  expense  of  doing  the 
business  remains  unchanged.  Also,  two  other  facts,  not 
indicated  by  the  table,  but  of  great  importance  in  deter- 
mining the  question.  First,  the  amount  of  local  business, 
upon  which  rates  would  have  to  be  reduced,  is  probably 
three  times  as  great  as  the  through  business  in  question  \ 
Second,  the  net  revenue  on  this  through  business,  done 
at  such  low  rates,  is  probably  not  a  third  of  the  net 
revenue  which  would  be  lost  upon  the  local,  pound 
for  pound,  by  the  reduction.  Evidently  the  profits 
to  the  railroad  would  be  as  nine  to  one  in  favor  of  simply 
abandoning  the  entire  through  business,  and  confining 
itself  to  the  local.  It  could  not  even  force  any  compro- 
mise with  the  water  routes,  for  the  latter  would  appreciate 
that  the  railroads  could  not  afford  to  enter  into  competi- 
tion, but  was  bound  hand  and  foot  by  the  tying  together 
of  local  and  competitive  rates. 

Now  let  us  see  who  would  be  benefited  by  this  result. 
We  will  suppose  that  the  law  was  passed  at  the  request 
of  Ogden,  which  felt  itself  outraged  by  having  to  pay 


Short  versus  Long  Haul.  19 

$2.14  for  what  San  Francisco  gets  for  $1.25  or  $0.87. 
Ogden  must  still  pay  its  $2.14,  and  the  railroad  which 
does  its  business  will  lose  one  ninth  of  its  net  revenue, 
and  run  one  third  less  trains.  Evidently  Ogden  is  rather 
injured  than  benefited. 

As  to  San  Francisco,  it  must  then  get  its  freight  en- 
tirely by  Isthmus  and  sail.  So  that  the  only  persons 
benefited  are  the  carriers  by  water,  between  New  York 
and  San  Francisco,  who  are  relieved  from  rail  competition, 
or  have  it  handicapped  with  severe  penalties.  Should  we 
join  the  ends  of  our  lines  representing  rates  in  the  table, 
we  would  have  a  line  which  we  might  call  the  curve  of 
rates.  It  rises  at  it  leaves  navigable  waters,  and  falls  as  it 
approaches  them.  There  is  an  apparent  exception  in  that 
there  is  no  point  higher  than  Chicago  between  that  place 
and  New  York.  There  were  such  points  in  former 
tariffs,  and  during  rate  wars  there  will  be  again  ;  but  the 
shortness  of  the  distance,  the  proximity  of  lakes  and 
rivers  on  each  side  of  the  line,  the  number  of  sharply 
competing  railroads,  the  cheapness  of  coal  and  iron,  and 
the  dense  population  of  the  country  have  enabled  the 
railroads  to  take  them  out  when  they  are  at  peace  and 
can  maintain  rates.  But  over  long  lines,  across  mountains 
and  deserts,  and  in  thinly  settled  countries  the  curve  of 
rates  will  always  rise  over  the  interior.  I  think  it  safe  to 
predict  that,  on  the  transcontinental  lines,  the  curve  will 
always  retain  its  present  general  character,  while  trans- 
portation by  land  remains  much  more  costly  than  by 
ocean. 

Railroads  may  be  forbidden  by  law,  and  under  heavy 


2o  Railway  Practice. 

penalties,  to  work  for  such  long-haul  business,  but  the 
rates  will  be  there  all  the  same ;  and  no  one  will 
be  benefited  by  the  railroad's  exclusion  from  them  but 
the  Pacific  Mail  steamers  and  the  clippers  around  the 
Horn. 

Three  mistaken  ideas  upon  this  subject  are  very  preva- 
lent, and  have  led  to  the  popularity  of  "  long-  versus  short- 
haul  "  legislation. 

First. — That  the  railroads  are  losing  money  on  the  long 
hauls  and  making  it  up  on  the  short ;  whereas,  whatever 
is  received  for  the  long  above  "additional  cost"  is 
extra,  and  goes  that  far  to  help  the  road  and  all  the 
country  along  it.  Second. — That  only  the  city  which 
receives  the  rate  gets  the  benefit,  when  it  is  really 
but  a  benefit  in  trust  on  its  way  to  local  producers 
and  consumers.  Third. — Every  village  believes  that 
competitive  rates  would  make  a  city  of  it,  which  ques- 
tion is  one  beyond  discussion. 

Finally,  it  may  be  remarked  that  the  very  phrase, 
"  charging  less  for  the  long  haul/'  in  the  essence  of  the 
matter,  implies  an  error.  For  the  essence  of  the  imagined 
injustice  is  in  the  idea  that  the  long  haul  costs  more 
than  the  short.  But,  in  the  element  of  cost,  six  miles 
of  ocean  are  scarcely  equal  to  one  mile  of  land,  and,  esti- 
mated by  the  cost,  the  distance  from  New  York  to  San 
Francisco  by  water  is  scarcely  as  great  as  from  New  York 
to  Omaha  by  rail.  As  measured  by  cost  of  transpor- 
tation by  the  shortest  line,  therefore,  San  Francisco 
is  nearer  New  York  than  Ogden,  and  is  entitled  to  the 
lower  rate. 


Personal  Discriminations.  21 

PERSONAL  DISCRIMINATIONS. 

I  have  shown  above  that  discrimination  between  things, 
resulting  in  classification  of  freights,  and  discrimination 
between  places,  resulting  in  lower  rates  at  competing 
points,  even  to  the  extent  sometimes  of  charging  less  for 
the  long  haul,  both  result  from  the  necessity  that  railroads 
are  under,  in  common  with  private  individuals  who  have 
services  to  sell,  of  basing  their  charges  upon  the  value  of 
their  services. 

I  have  shown  also  that  the  results  of  these  discrimina- 
tions are  advantageous  to  the  whole  community,  even  to 
the  localities  which  are  apparently  discriminated  against ; 
but  which  would  find  natural  or  geographical  discrimina- 
tions pressing  much  more  hardly  upon  them,  should  legis- 
lation interfere  with  the  freedom  of  the  railroads,  the 
natural  allies  and  friends  of  all  interior  towns,  to  compete 
for  business  and  draw  part  of  their  revenues  from  distant 
territories  and  customers. 

So  far,  then,  as  these  discriminations  are  concerned, 
there  is  no  railroad  problem. 

But  there  is  another  class  of  discriminations  which  have 
proven  a  problem  indeed, — discrimination  between  indi- 
viduals. 

None  of  our  railroads  are  able  to  command  all  the  bus- 
iness their  tracks  will  accommodate,  and  few  of  them  find 
it  easy  to  meet  their  fixed  charges  and  dividends  to 
stockholders.  Consequently,  the  struggle  for  business  is 
sharp  wherever  they  come  into  competition,  and  the  easi- 
est way  for  any  single  road  to  get  a  great  share  of  it  is-  to 
pay  the  large  shippers  for  it  by  giving  them  private  rates 


22  Railway  Practice. 

or  rebates.  These  rebates  give  the  favored  shippers  un- 
due advantages  over  their  competitors  in  business,  and 
are  most  cruel  wrongs  and  injuries  to  the  latter,  and  to 
the  community  as  a  whole.  No  language  is  too  severe  to 
apply  to  such  discriminations,  and  none  of  the  denuncia- 
tions of  Mr.  Hudson  or  other  writers  on  the  subject  are 
undeserved.  The  common  law  has  always  condemned 
them,  and  given  damages  to  parties  who  could  show 
themselves  discriminated  against. 

But,  unfortunately,  there  are  peculiar  difficulties  in  the 
way  of  preventing  such  abuses  by  legislation.  The  Rea- 
gan bill  seems  to  be  the  best  hope  of  those  who  have 
faith  in  legal  measures,  and  certainly  every  one  must  ap- 
prove its  proposed  allowance  of  exemplary  damages,  and 
its  bringing  legal  relief  more  easily  within  reach  of  an  in- 
jured party.  But  I  do  not  believe  that  this  or  any  other 
legal  remedy  can  ever  be  effective.  There  are  too  many 
ways  in  which  rebates  may  be  hidden  and  covered,  and 
the  more  severe  the  penalties  the  harder  will  be  the  prov- 
ing of  the  crime.  A  mere  verbal  promise  may  be  given 
and  a  private  account  kept,  no  money  being  paid  until  all 
danger  of  suspicion  has  passed,  or  until  action  would  be 
barred  by  limitations.  Or  the  railroad  company  can  enter 
into  other  dealings,  with  a  large  shipper,  to  secure  his  busi- 
ness, buying  goods  from  him  at  agreed  prices,  or  lending 
him  money  without  security.  It  is  simply  practically 
impossible  to  prevent  a  man's  making  a  present  to  his 
neighbor  if  he  chooses  to  do  so,  and  it  is  equally  practi- 
cally impossible  to  abolish  rebates  by  law.  There  is  no 
objection  to  going  as  far  as  the  law  can  go.  There  might 


Pools. 


23 


even  be  added  to  the  Reagan  bill  equal  penalties  for  the 
receiver  of  a  rebate  as  for  the  giver,  but  the  only  result 
would  be  that  rebates  would  be  more  secret  than  before. 

It  must  not  be  supposed,  however,  that  railroad  officials 
themselves  are  so  enamored  of  this  method  of  securing  busi- 
ness that  they  do  it  from  preference.  It  is  an  evil  which 
arose  very  gradually,  as  long  lines  were  formed  and  through 
business  grew  in  magnitude,  and  it  was  only  fully  devel- 
oped in  the  bitter  wars  which  have  both  followed  and 
fostered  this  growth.  And,  as  there  are  compensations 
in  all  things,  it  may  even  have  had  its  uses,  heretofore,  in 
teaching  both  railroads  and  the  public  how  cheaply 
freights  can  be  carried.  But,  however  that  may  be,  the 
railroad  managers  have  not  been  behind  the  public  in  a 
most  sincere  desire  to  put  an  end  to  the  system.  A  sys- 
tem of  rebating  can  only  be  profitable  to  a  railroad  when 
its  competitors  are  not  resorting  to  it  themselves.  Then 
it  becomes  unprofitable  to  all  alike,  and  it  is  not  claiming 
any  special  virtue  or  honesty  for  them  to  assert  the  sin- 
cerity of  the  efforts  they  will  make  to  break  up  the  sys- 
tem. This  leads  us  to  the  consideration  of  the  subject  of 
pools. 

POOLS. 

As  the  railroads  had  no  legal  restraint  upon  each  other, 
and,  from  personal  knowledge  of  the  matter,  appreciated 
that  legal  restraints  could  not  reach  the  demands  of  the 
case,  they  have  endeavored  to  find  a  remedy  for  the 
practice  of  rebating  which  would  go  to  the  very  root  of 
the  evil. 


24  Railway  Practice. 

The  principle  upon  which  they  have  based  their  remedy 
is  that  of  removing  the  temptation  to  give  rebates.  It  is 
certainly  the  most  effective  way  of  abolishing  any  crime, 
to  remove  the  temptation  to  commit  it. 

Until  ten  or  twelve  years  ago,  agreements  and  promises 
between  managers  were  relied  upon  entirely  to  secure 
uniformity  and  publicity  of  rates  in  competing  business. 
About  that  time  it  became  manifest  that  they  could  be 
relied  upon  no  longer.  It  was  not  that  any  one  could 
not  confide  in  the  personal  good  faith  of  any  other  one  ; 
but  responsibility  and  power  are  necessarily  greatly  sub- 
divided in  the  management  of  a  railroad  covering  a  thou- 
sand miles  and  fed  by  many  connecting  lines,  and  the 
manager  must  repose  some  confidence  in  subordinates 
who,  as  experts,  have  charge  of  various  departments,  and 
he  must  depend  upon  them  for  facts  and  information. 
Subordinates  are  always  partisans,  jealous  of  the  rights  of 
their  particular  roads,  and  suspicious  of  the  fair  play 
of  others.  Shippers,  moreover,  are  too  prone  to  believe 
that  their  best  interests  are  promoted  by  having  the 
railroads  always  at  war  with  each  other,  and  resort  to  all 
sorts  of  devices  to  destroy  confidence  between  the  rail- 
roads, and  make  each  one  believe  that  some  other  is 
giving  rebates. 

Where  there  are  only  two  or  three  competitors,  per- 
sonal agreements  to  maintain  rates  may  sometimes  be 
sufficient,  but  where  the  number  becomes  great,  confi- 
dence in  the  good  faith  of  all  is  hard  to  be  maintained. 

When  confidence  is  gone,  the  agreements  are  but  ropes 
of  sand,  and  it  is  as  impossible  to  fix  responsibility  for 


Pools.  25 

this  state  of  affairs  upon  any  particular  person,  or  railroad, 
as  it  would  be  to  blame  any  particular  member  o,f  Con- 
gress for  its  occasional  waste  of  time  upon  trifling  matters 
to  the  neglect  of  others  of  grave  importance.  It  is  simply 
the  way  that  numbers  affect  joint  operations.  Methods 
that  will  suit  small  communities,  or  affairs  upon  a  small 
scale,  may  be  entirely  unadapted  to  larger  ones. 

So  the  development  of  our  railroad  system,  years  ago, 
passed  the  point  at  which  uniformity  and  stability  of 
rates  could  be  maintained  by  ordinary  agreements,  such 
as  still  prevail  in  most  of  the  special  industries  of  the 
country,  and  several  years  of  bitter  competition  ensued 
which  may  well  be  characterized  as  wars,  for  the  ruthless- 
ness  of  their  methods.  It  was  during  these  wars  that 
the  Standard  Oil  Company  acquired  its  first  strength 
and  prestige,  and  that  the  rebating  system  grew  up, 
which  was  afterwards  exposed  by  the  Hepburn  investi- 
gation. The  Standard  Oil  Company  for  a  long  time 
received  rebates  from  the  railroads  averaging  over  a 
half  million  per  month,  and  in  every  trade  and  industry, 
which  used  the  railroads  largely,  rates  were  honey-  \ 
combed  everywhere  with  rebates  to  those  smart  enough 
to  get  them. 

The  railroad  situation  then  indeed  became  a  problem, 
and  to  this  problem  there  soon  seemed  to  the  railroad 
managers  but  one  possible  solution.  And  in  all  the 
writings  and  legislative  debates  which  have  gone  on  over 
it  since,  and  among  all  the  experiments  which  have  been 
tried  at  home  and  abroad,  nothing  else  has  yet  been  sug- 
gested which  has  given  any  promise  of  success.  Unre- 


26  ,   Railway  Practice. 

stricted  competition,  or  war,  among  railroads,  means  dis- 
tress and  injury  to  the  community.  It  means  rebates  to  the 
large  shippers  and  a  crushing  out  of  the  small.  It  means 
fluctuating  rates  ;  it  means  bankruptcy  to  railroads  and 
loss  to  investors,  and  finally  financial  crises  and  commer- 
cial panics,  in  which  the  poor  and  the  weak  suffer  most. 
And  until  some  practical  plan  of  restraining  competition 
within  reasonable  limits  is  devised,  pooling  must  be  re- 
sorted to  as  the  only  refuge  from  immediate  and  greater 
evils.  It  is  not  protended  that  there  may  not  be  evils 
and  dangers  inherent  in  the  pooling  system.  But  so  far 
as  the  present  experience  of  the  world  teaches,  it  is 
the  only  effective  remedy,  or  palliation  if  one  prefers, 
for  evils  which  cannot  be  at  all  times  endured.  But 
it  is  not  an  easy  remedy  to  apply.  The  difficulties  of 
establishing  and  carrying  out  a  successful  pooling 
system  are  very  great,  and  ten  years  of  effort  on  the 
part  of  the  railroads  have  not  succeeded  in  overcoming 
them  all. 

One  of  the  principal  difficulties  has  been  found  in  the 
popular  prejudice  against  them.  The  public  has  regarded 
the  pool  as  simply  a  device  to  advance  rates  to  extortion- 
ate figures.  A  cry  is  raised  against  the  "  power  "  which 
a  pool  is  supposed  to  place  in  the  hands  of  its  managers. 
Power  is  a  very  vague  word  until  it  is  stated  what  work 
the  power  is  to  accomplish.  Applied  to  a  railroad  pool, 
it  can  only  mean  a  power  to  raise  rates  beyond  reason- 
able figures,  or  to  practise  extortion. 

Ten  years  ago  theories  upon  this  subject  were  in  order, 
for  the  experiment  was  untried.  But  now  we  have  some 


Pools.  27 

facts  before  which  all  theories  must  yield.  We  can  now 
at  least  judge  of  the  tendency  of  the  pool,  and  by  com- 
paring the  present  situation  with  that  at  its  beginning, 
can  decide  whether  or  not  there  is  any  palliation  of 
the  personal  discriminations  from  which  deliverance 
was  sought,  and  whether  or  not  there  are  any  indica- 
tions of  the  approaching  extortion  apprehended  by  the 
public. 

As  to  the  decrease  of  personal  discriminations,  or  the 
prevalence  of  rebates,  there  are  of  course  no  statistics  or 
exact  figures  to  be  appealed  to,  but  there  are  certain  in- 
dications from  which  the  general  situation  may  be  in- 
ferred. First,  there  is  little  recent  public  complaint  of 
this  evil  by  shippers.  Ten  years  ago  the  papers  were 
filled  with  it,  and  public  meetings  were  frequently  held 
to  denounce  it.  The  indignation  would  not  be  less  now 
did  it  exist  to  an  equal  degree.  The  theorists  who  from 
time  to  time  write  and  declaim  against  the  railroads, 
draw  all  their  examples  from  dates  prior  to  the  estab- 
lishment of  the  pool,  or  from  periods  when  its  operations 
were  suspended.  The  oldest,  and,  in  some  respects,  the 
most  successful  pool  in  the  United  States,  is  that  of  the 
Southern  Railway  and  Steamship  Association,  which 
covers  most  of  the  South  Atlantic  and  Gulf  States. 
Before  it  was  established  the  rates  were  honeycombed 
with  rebates  at  every  competitive  point  in  the  territory. 
To-day,  from  some  personal  knowledge  of  the  situation 
and  from  the  best  information  I  can  obtain,  I  do  not  be- 
lieve that  there  exists  a  single  rebate  or  personal  dis- 
crimination in  all  the  pooled  business  in  that  territory. 


28  Railway  Practice. 

As  to  the  trunk-line  pool  in  New  York,  it  is  believed  by 
those  most  likely  to  know  or  to  suspect  such  things,  that 
none  exist  on  the  part  of  any  of  the  trunk  lines,  though 
it  is  probable  that  some  of  the  weaker  connections  still 
purchase  a  part  of  their  business  in  some  way. 

If  this  is  the  case,  it  only  illustrates  the  great  difficulty 
in  making  the  pooling  system  a  success — the  difficulty 
of  disciplining  those  who  do  not  adhere  strictly  to  agree- 
ments. 

Prof.  Hadley  writes  on  this  subject  as  follows  in  his 
work,  "  Railroad  Transportation,"  before  referred  to,  page 
249: 

"  The  governments  of  Central  Europe  have  given  up  trying 
to  procure  obedience  to  these  principles  by  simple  prohibitory 
laws,  such  as  are  occasionally  proposed  in  Congress.  They 
have  a  hundred  times  more  police  power  than  we  have,  but 
they  do  not  undertake  to  do  this.  To  secure  obedience  to  this 
system,  they  must  take  away  the  temptation  to  violate  it.  This 
can  only  be  done  by  a  system  of  pooling  contracts.  These  are 
accordingly  legalized  and  enforced.  They  are  carried  on  to  an 
extent  undreamed  of  in  America.  They  have  both  traffic 
pools  and  money  pools.  There  are  pools  between  State  roads 
and  private  roads,  between  railroads  and  water  routes.  It  is 
regarded  as  a  perfectly  legal  thing  that  one  road  should  pay 
another  a  stated  sum  of  money  in  consideration  of  the  fact  that 
the  latter  abstain  from  competing  for  the  through  traffic  of  the 
former." 

It  is  certainly  clear,  then,  that  the  pooling  system  at 
least  greatly  palliates  the  evils  of  discrimination  and  re- 


Pools.  29 

bates.  It  only  remains  to  see  whether  in  avoiding  these 
we  are  liable  to  have  the  public  subjected  to  extortion. 
Here  we  may  have  exact  figures  to  settle  the  question 
beyond  all  doubt,  and  I  select  a  few  examples  to  illustrate 
the  rates  before  and  after  pooling. 

From  Chicago  to  New  York  fourth-class  rates  in  Janu- 
ary, 1876,  were  forty-five  cents  per  one  hundred  pounds. 
In  January,  1886,  they  were  twenty-five  cents. 

But  it  is  sometimes  asserted  that  while  the  rates  to  com- 
petitive points,  such  as  Chicago  have  declined,  those  to 
local  points  are  maintained  at  exorbitant  rates.  I  have 
therefore  at  random  selected  two  rates,  one  partially  a 
local  rate,  and  the  other  entirely  so,  New  York  to  Pitts- 
burg,  and  Altoona  to  Pittsburg ;  and  have  made  com- 
parison with  the  rates  of  1876.  It  is  as  follows : 

Per  100  pounds.  Jan.,  1876.  Jan.,  1886. 

New  York  to  Pittsburg,  4th  class  .30  .20 

Altoona       "  .28  .17 

In  the  territory  of  the  Southern  Railway  and  Steam- 
ship Association  a  fair  sample  rate  is  that  on  compressed 
cotton  from  Atlanta  to  New  York.  At  the  formation  of 
the  pool  in  1875  this  rate  was  $1.10  per  100  pounds.  It 
is  now  $0.75.  A  purely  local  rate  from  Loachapoka,  Ala., 
to  Montgomery,  Ala.,  selected  at  random,  shows  cotton 
per  100  pounds,  in  1875,  $0.33 ;  and  in  1886,  $0.24. 

A  graphic  illustration  of  these  rates  makes  a  picture  as 
suggestive  as  the  patent  medicine  advertisements  show- 
ing the  patient  before  and  after  taking  some  great  invig- 
orator.  Thus : 


Railway  Practice. 


COMPARATIVE  RATES. 

BEFORE  POOLING. 

AFTER  POOLING. 

4th  Class,  Chicago  to 
New  York. 
"        "      New  York  to 
Pittsburg. 
"        "     Pittsburg  to 
Altoona. 
Cotton,  Atlanta  to 
New  York. 
"       Loachapoka  to 
Montgomery. 

45 

_2L 

20 

_i2 

75 

28 

1.  10 

jj_ 

24 

As  to  the  effect  of  pooling  upon  rebates,  as  before  ex- 
plained, exact  figures  and  data  cannot  be  obtained,  but  a 
graphic  illustration  of  it  would  be  like  the  comparison 
of  an  enormous  flock  of  crows  with  a  few  solitary 
blackbirds. 

In  the  face  of  these  facts,  theorists  like  Mr.  Hudson, 
who  advances  arguments  based  upon  the  report  of  the 
Hepburn  Committee  and  other  ancient  history,  are  not 
entitled  to  attention.  They  have  been  left  behind,  and 
are  threshing  old  straw.  For  the  business  portion  of  the 
community,  those  who  use  the  railroads  and  pay  them 
their  freights,  are  rapidly  absorbing  the  real  facts  of  the 
situation. 

Not  only  are  rates  lower,  more  uniform  to  all  shippers 
than  ever  before,  and  less  liable  to  fluctuations,  but  uni- 
formity of  classification  is  increasing,  and  harmonious  ar- 
rangements between  different  lines  are  promoted,  which 
greatly  facilitate  business. 

An  ideal   system  of  transportation  would   be  one  in 


Pools.  3 1 

which  any  shipper  might  sit  quietly  in  his  office,  and  con- 
tract  to  deliver  freight  at  any  town  in  the  United  States 
by  referring  to  a  printed  tariff  which  would  show  rates  as 
uniform  to  all  as  the  rates  of  postage,  and  not  exorbi- 
tant in  amount.  Let  us  see  how  near  the  existing  state 
approaches  the  ideal,  and  whether  its  tendency  is  toward 
it  or  not. 

The  trunk-line  railroads  centering  in  New  York  now 
issue  a  little  book  of  about  forty  pages,  seven  inches  by 
three,  which  can  be  carried  in  the  pocket,  and  gives  the 
following  information. 

First,  a  classification  of  freight,  embracing  almost 
every  thing  known  to  commerce  arranged  in  five  classes. 

It  begins  as  follows  : 

PART    OF    TRUNK-LINE    FREIGHT    CLASSIFICATION. 

Abbreviations  used. — O.  R.  :  Owner's  risk.  C.  L.  :  Car  Loads.  L.  C.  L.  t 
Less  than  Car  Load.  N.  O.  S.  :  Not  otherwise  specified.  2  t :  two  times. 

ARTICLES.  CLASS. 

Acids,  less  than  50  carboys,  O.  R.  breakage  and  leakage.  .2t  i 

Acids,  not  less  than  50  carboys,  L.  C.  L.,  O.  R 3 

Acids,  in  barrels  or  iron  drums,  O.  R 3 

Acids,  C.  L.,  O.  R 4 

Acids,  N.  O.  S.,  O.  R i 

Acid,  Tartaric,  in  boxes  or  kegs 2 

Acid,  Tartaric,  in  barrels  or  hogsheads 3 

Agate,  Ware 2 

Agricultural  Implements,  N.  O.  S.     (See  Machinery.) 

Alcohol.     (Same  as  Liquids.) 

Ale,  packed  in  boxes » i 


32  Railway  Practice. 

Ale,  packed  in  barrels  or  casks 2 

Ale,  in  wood 4 

Alum,  in  boxes,  kegs,  or  bags 2 

Alum,  in  barrels  or  casks 4 

Ammonia,  dry,  in  boxes,  kegs,  or  bags 2 

Ammonia,  dry,  in  barrels  or  casks 4 

Ammonia,  liquid.      (Same  as  Acids.) 

Anchors 4 

Animals.     (See  Live  Stock) 

Antimony,  metal,  loose,  in  slabs  or  in  boxes 2 

Antimony,  metal,  in  barrels  or  casks 3 

Anvils 4 

Apples,  green,  L.  C.  L.,  O.  R i 

Apples,  green,  C.  L.,  O.  R 3 

Apples,  dried,  in  barrels  or  bags 4 

Apples,  dried,  in  boxes 2 

Argols,  in  boxes,  kegs,  or  bags 2 

Argols,  in  barrels  or  casks 4 

Etc.,  Etc. 

Next  comes  a  list  of  all  the  important  railroad  stations 
in  the  territory  covered  (which  includes  most  of  the 
United  States  east  of  California  and  Nevada,  except  the 
South  Atlantic  and  Gulf  States  covered  by  the  Southern 
Railway  and  Steamship  Association),  and  the  rate  on 
each  class  of  goods  from  New  York  to  each  point. 

It  begins  as  follows  : 


Pools. 
RATES  OF  FREIGHT. 


33 


FROM  NEW  YORK 

TO 

PER  100  POUNDS. 

1ST 

CLASS. 

2D 

CLASS. 

3D 
CLASS. 

4TH 

CLASS. 

SPECIAL. 

Aberdeen,  Miss. 

$i  80 

$i  54 

$i  27 

$1    02 

$    92 

Ackley,  Iowa 

i  52 

i  23 

95 

7i 

61 

Ada,  Ohio 

64 

5i 

39 

30 

22 

Adams,  Ind. 

68 

54 

39 

30 

22 

Adams  Mills,  Ohio 

56 

44 

33 

26 

J9 

Addison,   Ohio 

61 

49 

38 

29 

21 

Addison,  Mich. 

71 

57 

43 

33 

24 

Akron,  Ohio 

53 

43 

32 

25 

18 

Alamossa,  Col. 

4  90 

3  99 

3    22 

2  53 

2   42 

Alanson,  Mich. 

I  05 

85 

65 

50 

40 

Alba,  Mich. 

I  05 

85 

65 

50 

40 

Albert  Lea,  Minn. 

I  70 

i  40 

I    IO 

79 

69 

Albion,  Pa. 

53 

43 

32 

25 

1  8 

Albuquerque,  N.  M. 

4  52 

3  89 

3  20 

2   64 

2  53 

Alexandria,  Ohio 

56 

44 

33 

26 

19 

Alexandria,  Ind. 

69 

55 

41 

32 

23 

Allegan,  Mich. 

75 

60 

45 

35 

25 

Allegheny,  Pa. 

43 

35 

26 

20 

15 

Alliance,  Ohio 

53 

43 

32 

25 

1  8 

Altamont,  Ills. 

i  14 

92 

71 

54 

38 

Alton,  Ills. 

87 

70 

52 

4i 

29 

Alton,  Ohio 

62 

50 

37 

29 

21 

Almanda,  Ohio 

66 

44 

4i 

33 

26 

Lastly  comes  a  list  of  about  three  hundred  Eastern 
towns  and  manufacturing  villages,  from  each  of  which  the 
same  rates  apply  as  are  given  from  New  York. 

It  begins  as  follows  : 


OTHER    POINTS    TAKING    NEW    YORK    RATES. 


STATIONS. 


RAILROADS. 


Abington,  Conn N.  Y.  &  N.  E. 

Andover,  Conn N.  Y.  &  N.  E. 

Ansonia,  Conn Naugatuck. 


34  Railway  Practice. 

Anthony,  R.  I N.  Y.  &  N.  E. 

Arnold's  Mills,  R.  I N.  Y.  &  N.  E. 

Ashuelot,  N.  H Conn.  River. 

Auburn,  Mass N.  Y.  &.  N.  E. 

Avon,  Conn N.  H.  &  N. 

Ayer  Junction,  Mass .Wor.  &  Nash. 

Baltic,  Conn N.  Y.  &  N.  E. 

Bartow,  N.  Y N.  Y.,  N.  H.,  &  H. 

Bay  Chester,  N.  Y N.  Y.,  N.  H.,  &  H. 

Bellingham,  Mass N.  Y.  &  N.  E. 

Etc.,  Etc. 

Evidently  the  railroads  appreciate  what  the  country 
needs,  and  are  striving  to  attain  to  it.  It  is  of  course 
possible  that  among  a  thousand  kinds  of  freight  from 
three  hundred  points  of  origin  to  twelve  hundred  points 
of  destination,  there  may  be  many  adjustments  of  rates 
and  classification  still  to  be  made  to  secure  perfect  fair- 
ness, and  such  adjustments  as  are  suggested  by  experience 
are  constantly  being  made  in  conference  between  experts 
upon  both  sides. 

With  reference  to  one  of  them  recently  accomplished, 
the  Financial  Chronicle  of  August  I4th  said  in  its  finan- 
cial article  : 

"  As  illustrating  the  spirit  of  the  times  in  the  way  of  com- 
promising difficulties  and  removing  disagreements,  we  may 
cite  the  action  of  the  trunk-line  pool  this  week  in  yielding  the 
demands  of  the  dry- goods  people  for  a  lower  classification  for 
freight.  Similar  demands  had  been  made  before,  when  the 
pool  was  not  so  strong  nor  so  firmly  welded  together,  and 
when,  therefore,  the  probability  of  granting  the  request  seemed 


Pools.  35 

stronger,  and  yet  the  demand  then  was  refused.  Now,  when 
the  pool  is  on  a  very  stable  basis,  and  in  position  apparently 
to  pursue  an  independent  and  arbitrary  course,  the  efforts  of 
the  dry-goods  people  have  met  with  a  considerable  amount  of 
success.  There  is  a  lesson  in  this.  It  shows  that  the  mana- 
gers of  the  pool  are  neither  obstinate  nor  unreasonable,  and 
further,  that  they  are  not  disposed  to  take  undue  advantage  of 
the  great  powers  possessed  by  them." 

The  same  paper,  in  its  issue  of  September  4th,  has  an 
editorial  upon  "  The  Effectiveness  of  Pools,"  from  which 
I  quote  as  follows  : 

"  The  old  idea  that  a  pool  is  a  selfish,  grasping  monopoly, 
intent  upon  devouring  every  thing  within  its  reach,  desirous  of 
stifling  competition,  and  bent  on  levying  exorbitant  taxes  upon 
the  commerce  and  industries  of  the  country,  has  given  place 
to  a  much  more  rational  and  enlightened  view.  It  is  recog- 
nized now  that  it  is  a  measure  of  self-protection,  designed 
simply  to  avoid  the  evils  of  reckless  competition. 

"Enlightened  self-interest  has  been  the  stimulating  cause. 
There  has  been  no  desire  to  assume  the  aggressive  as  against 
other  interests  or  other  departments  of  industry,  but  rather  an 
attempt  to  avoid  self-destruction." 

Finally  I  give,  from  Mr.  Poor's  excellent  "  Railroad 
Manual,"  the  following  figures  showing  actual  results  of 
the  railroad  operations  of  the  United  States  for  the  year 
1885: 

127,729  miles  of  railroad  were  represented  by 
$3,817,700,000  stock, 
3,765,700,000  bonds, 
259,000,000  floating  debt. 


36  Railway  Practice. 

The  gross  earnings  for  the  year  were     $772,569,000 
Expenditures    "     "       "  503,075,000 

Net  earnings  269,494,000 

The  net  earnings  therefore  averaged  3.5  per  cent,  upon 
the  capital.  Of  the  net  earnings,  $189,426,000  was 
paid  as  interest  upon  debt,  averaging  4.77  per  cent,  upon 
the  bonds,  and  $77,672,000  was  paid  as  dividends,  aver- 
aging 2.02  per  cent,  upon  the  stock. 

Tonnage  handled  increased  10  per  cent,  over  the  pre- 
vious year,  but  revenue  received  from  it  decreased  5.8 
per  cent. 

The  average  freight  rate  per  ton  per  mile  was  1.057 
cents  for  1885,  against  1.124  f°r  1884,  and  J-24  f°r  l883> 
a  decrease  of  about  20  per  cent,  within  three  years. 

Surely  there  can  be  no  charge  of  extortion  made 
against  a  system  showing  such  figures  as  the  above.  The 
ear-mark  of  extortion  is  exorbitant  profits  to  stock- 
holders. When  the  stockholders  receive  such  small  re- 
turns, the  rates  as  a  whole  cannot  be  exorbitant. 

This  record  of  our  railroads  is  unexcelled,  for  cheap 
service  and  low  returns  upon  capital  employed,  by  that  of 
any  country  in  Europe,  and  is  unequalled  except,  per- 
haps, by  Belgium,  though  their  dense  populations,  cheap 
labor  and  material,  and  low  rates  of  interest  give  them 
many  advantages  in  operating  and  maintaining  their  lines. 
In  England  the  average  returns  on  railroad  capital  are 
over  4  per  cent,  on  both  stock  and  bonds,  which  is  not 
considered  as  low  a  rate  there  as  it  would  be  in  the  United 
States.  In  France  the  railroads  pay  about  4%  per  cent, 
upon  their  bonds  and  9  per  cent,  upon  their  stock. 


Pools.  37 

Prussian  (state)  railroads  pay  about  5^  per  cent.;  Austrian, 
a  little  less.  The  Belgian  system  for  many  years  paid  6 
per  cent.,  but  has  recently  declined  to  3,  and  is  considered 
unprosperous.* 

But  it  is  asserted  that  much  of  the  stock  of  our  rail- 
roads is  not  legitimate,  but  is  water.  Such  an  argument 
may  apply  against  any  particular  railroad  that  earns 
exorbitant  dividends,  but  against  the  system  as  a  whole 
it  does  not.  For  it  would  be  easy  to  show  that  for 
every  dollar  of  water  in  existing  stocks,  two  dollars  of 
the  money  of  railroad  investors  has  been  lost  like  water 
spilt  in  the  sand.  Much  of  it  was  lost,  doubtless,  by  bad 
judgment,  but  the  fact  remains  that  our  existing  system 
of  railroads,  as  a  whole,  has  cost  fully  as  much  as  it 
is  capitalized  at.  Scarcely  one  of  them  was  originally 
built  as  it  stands  to-day.  The  earlier  ones  have  been 
rebuilt  and  re-equipped  three  or  four  times,  as  experience 
pointed  out  necessary  improvements.  Many  of  them, 
too,  were  built  before  the  business  really  demanded  them, 
and  the  loss  from  this  source  has  been  enormous.  Poor's 
"  Manual "  gives  a  list  of  railroads  put  in  the  hands  of 
receivers  during  the  year  1885,  and  it  embraces  9,885 
miles  of  railroad  (nearly  8  per  cent,  of  total  mileage  in 
the  country),  with  $293, 000,000  stock,  $297,000,000  bonds, 
and  $27,000,000  unsecured  debt. 

If  the  state  would  guarantee  the  interest  upon  money 
legitimately  invested  in  railroad  construction,  investors 
would  readily  furnish  all  that  might  be  desired,  and  rail- 

*  I  am  indebted  to  Prof.  A.  T.  Hadley,  of  Yale  College,  for  above  facts 
concerning  foreign  roads. 


38  Railway  Practice. 

roads  could  and  would  be  built  without  watered  stock. 
But  the  state,  very  properly,  refuses  to  assume  any  risk, 
and  leaves  it  to  be  borne  entirely  by  the  investor.  The 
latter,  then,  having  all  the  risk,  naturally  demands  to  have 
also  all  the  chances  of  profit  if  the  road  turns  out  a  suc- 
cess. He  discounts  the  future  and  takes  watered  stock 
to  represent  what  he  hopes  will  be  his  earnings.  That  is 
the  only  way  that  communities  wanting  railroads  can 
induce  investors  to  supply  the  funds.  No  other  system 
would  suit  American  ideas  and  our  form  of  government. 
Some  of  the  European  governments  have  adopted  a 
different  course,  and  built  and  controlled  in  various  ways 
their  own  railroads.  But  as  a  whole  I  think  we  need  not 
envy  them  their  results. 

But  although  our  watered  stocks  are  not  at  present  the 
basis  of  extortion  in  rates,  nor  very  likely  to  become 
so,  there  is  another  view  of  them  in  which  it  is  not 
so  clear  that  public  indifference  to  them  should  con- 
tinue. They  are  essentially  like  gambling  inducements, 
offered  to  investors  to  get  their  money  into  railroad  con- 
struction. It  is  as  if  the  state  allowed  promoters  of  rail- 
roads to  raise  funds  by  means  of  lottery  schemes,  selling 
as  prizes  the  chances  of  growing  rich  upon  future  busi- 
ness represented  by  watered  stocks.  So  far  it  has  been, 
perhaps,  a  good  thing  financially  for  the  state.  The 
investors,  as  a  whole,  have  had  much  of  their  money 
swallowed  up,  and  receive  an  average  of  only  3^  per 
cent,  on  the  remainder,  while  the  public  has  the  railroads, 
and  very  good  ones  too. 

But  I  record  my  conviction  that  the  practice  of  stock 


Pools.  39 

watering  should  be  prohibited,  without  much  hope  of  ever 
seeing  it  done,  and  more  on  the  ground  that  it  is  against 
public  policy  to  make  it  easy  for  men  to  build  railroads,  or 
float  any  enterprises,  with  other  people's  money,  than  from 
the  fear  of  railroads  being  enabled  to  practise  extortion  by 
the  possession  of  watered  stock.  I  think  that  at  present 
the  investor  needs  protection  more  than  the  shipper. 

To  return  to  the  subject  of  pooling.  I  believe  that  the 
pool  has  come  to  stay.  We  have  not  yet  learned  how  to 
best  obviate  all  the  troubles  and  difficulties  attending  it, 
and  its  operation  is  yet  very  far  from  perfect.  But  we 
are  learning  every  day, — both  the  people  and  the  rail- 
roads. With  the  fierce  opposition  of  shippers  everywhere 
at  the  commencement,  it  is  a  wonder  that  success  has 
been  so  great  as  it  has.  But  it  has  been  fortunate  that 
the  experiment  was  made  under  a  commissioner  whose 
intelligence,  experience,  and  integrity  commanded  the  re- 
spect and  confidence,  even  of  those  who  differed  with  him 
most  radically.  At  last  he  is  winning  for  his  work  the 
recognition  that  it  deserves — a  work  more  important  than 
any  other  which  has  been  accomplished  in  the  United 
States  within  twenty  years.  Mr.  Fink  is  bringing  about 
peace — peace  in  a  war  which  unsettled  all  values,  threat- 
ened the  fortunes  of  the  poor,  and  made  all  business  ex- 
tra hazardous. 

But  while  the  business  men  of  the  country  are  grad- 
ually learning  to  appreciate  this,  there  is  threatened  still 
adverse  legislation,  designed  to  tear  up  and  destroy  all 
that  has  been  accomplished  in  devising  a  successful  pool, 
and  to  utterly  prohibit  the  practice  for  the  future. 

\ 


4O  Railway  Practice. 

Should  it  be  enacted,  there  can  be  but  one  result.  Rail- 
roads will  not  and  can  not  forever  fight.  All  wars  must 
end  in  peace,  and  peace  between  rival  railroads  can  only 
last  when  there  is  some  community  of  interest.  That 
may  obtain  in  two  ways — by  a  pool,  or  by  consolidation 
under  one  ownership.  Already  great  progress  has  been 
made  under  the  second  method,  even  while  the  pooling  has 
been  going  on.  The  best  that  a  pool  can  accomplish  after 
all  is  but  a  partial  community  of  interest,  and  where  the 
rivalry  is  bitter  consolidation  is  very  apt  to  result. 

Now,  let  pooling  be  forbidden  or  let  it  fail,  and  consoli- 
dation must  be  the  inevitable  result.  It  will  become 
simply  a  commercial  necessity,  as  resistless  as  the  down- 
ward flow  of  the  Mississippi  to  the  sea.  It  may  be 
temporarily  checked  in  any  manner  that  theorists  think 
good,  but  it  will  have  its  way  in  the  end. 

PROPOSED  PLANS  OF  REFORM. 

I  have  endeavored  above  to  give  a  clear  idea  of  the 
underlying  principles  and  the  actual  methods  of  the  rail- 
way practice  of  to-day,  and  to  show  that  they  are  essen- 
tially uniform  in  all  countries,  as  preliminary  to  a  brief 
discussion  of  the  reforms  suggested  by  Mr.  J.  F.  Hudson 
and  Prof.  R.  T.  Ely. 

Perhaps  another  preliminary  should  be  some  notice  of 
the  causes  of  their  dissatisfaction  with  the  present  system. 

Mr.  Hudson's  is  very  easy  to  understand.  He  is  many 
years  behind  in  the  state  of  the  science,  and  several  in 
the  history  of  the  practice.  He  objects  to  any  classifi- 
cation of  freights  ;  he  would  limit  competition  with 


Proposed  Plans  of  Reform.  41 

water  lines ;  he  would  abolish  all  pools  and  prevent  all 
consolidations.  He  believes  that  the  state  of  affairs  which 
existed  ten  years  ago,  as  developed  by  the  Hepburn 
Committee,  before  the  formation  of  the  trunk-line  pool, 
still  obtains,  and  his  proposed  reform  is  to  return  to  the 
old  theories  which  existed  before  there  was  any  practice. 

But  Mr.  Hudson  is  definite  in  his  statements  and  easy 
to  understand,  and  to  answer  if  there  be  any  reply ;  in 
which  he  is  in  strong  contrast  with  Prof.  Ely,  in  Harper  s 
Magazine,  before  referred  to. 

The  latter  is  an  expert  in  political  economy  and  scien- 
tific terminology,  and  his  dissatisfaction,  like  one  of 
Turner's  paintings,  while  very  evident  in  mass,  is  hard  to 
lay  hold  on  in  detail. 

A  quotation  will  illustrate: 

"  Railways  have  perverted  that  normal  and  healthful  depend- 
ence of  man  upon  man  which  leads  to  the  formation  of  the 
fraternal  commonwealth, — a  commonwealth  of  equal  rights 
and  privileges,  such  as  our  fathers  aspired  to  found." 

Now,  I  respectfully  submit  that  to  a  practical  man,  face 
to  face  with  the  problem  of  trying  to  satisfy  rival  commu- 
nities of  merchants  and  shippers,  employees  asking  higher 
wages,  and  creditors  and  investors  seeking  returns  upon 
their  capital,  such  criticism  as  the  above  is  nonsense. 

Does  it  mean  that  his  railroad  charges  too  much  for 
carrying  freight,  and  if  so,  what  freight  and  where ;  or  that 
he  refuses  to  carry  it  at  all ;  or  that  he  takes  it  and  loses 
it  on  the  way?  If  he  carries  it  at  reasonable  rates,  and 
delivers  it  all  right  at  end  of  journey,  what  more  is  wanted? 


42  Railway  Practice, 

What  have  our  fathers  to  do  with  the  case  ?  But  lest  I 
do  Prof.  Ely  injustice,  let  me  give  a  part  of  his  more 
formal  arraignment  and  generous  condemnation  of  every- 
thing about  our  railway  system,  and  everybody  con- 
nected with  it.  He  calls  the  latter  ''them"  and  all 
other  people  "us,"  and  declares  that  between  "us"  and 
"  them  "  there  is  no  possible  permanent  relationship  ex- 
cept that  of  "  master  and  slave  " — that  "  there  is  no  middle 
ground." 

He  formulates  his  charge  as  follows : 

"  I  propose  to  show  in  these  articles  that  our  abominable 
no-system  of  railways  has  brought  the  American  people  to  a 
condition  of  one-sided  dependence  upon  corporations  which 
too  often  renders  our  nominal  freedom  illusory." 

Again,  I  submit,  the  above  means  nothing.  It  is 
like  the  poetry  we  read  in  our  dreams,  having  rhythm 
and  harmony  of  sound,  but  very  vague  in  its  ideas.  Who 
did  it  ?  What  did  he  do  ?  Is  it  too  late  to  stop  him  ? 
Will  the  tearing  up  of  any  old  roads  or  the  building  of 
any  new  tend  to  prevent  our  nominal  freedom  from 
becoming  illusory?  If  so,  which  roads  ? 

From  all  the  context  I  can  get  but  one  suggestion  of 
where  the  freedom  of  the  people  is  restricted,  and  it  lies 
in  the  fact  that  shippers  of  freight  are  not  free  to  name 
the  rates  they  will  pay  for  the  service,  but  that  many 
shippers  have  to  ask  rates  from  a  single  railroad. 

The  shippers  being  in  numerical  majority,  he  implies 
that  their  wishes  as  to  rates  should  prevail. 

My  limits  will  not  permit  more  extended  illustration  of 
what  is  nebulous  in  Mr.  Ely's  bill  of  complaint.  I  will  only 


Proposed  Plans  of  Reform.  43 

say  that  when  one  who  is  before  the  public  as  an  expert 
and  teacher  in  social  and  political  economy,  declares  him- 
self in  favor  of  industrial  and,  if  necessary,  political  revo- 
lution, as  Mr.  Ely  does,  his  language  and  charges  should 
not  be  vague  and  ambiguous.  Other  reformers  are  in  the 
field  before  him,  advocating  reforms  and  revolutions  dif- 
fering from  his  only  in  a  degree  and  in  the  measures  they 
are  prepared  to  use  to  carry  them  into  effect.  Indignant 
declamation  in  sounding  generalities  furnishes  aid  and 
comfort  to  the  most  visionary  of  socialists. 

But  the  one  matter  of  complaint  upon  which  Professor 
Ely  is  comprehensible,  and  is  in  accord  with  Mr.  Hudson, 
is  the  increasing  size  of  railway  corporations.  Each  re- 
gards size  as  synonomous  with  power,  and  power  they 
assume  to  be  only  ability  to  do  some  great  public  evil, 
the  exact  nature  of  which  is  not  indicated. 

It  is  true  that  our  railroad  corporations  are  growing 
rapidly  in  size.  So  are  many  other  corporations.  It  is 
one  of  the  developments  of  the  age.  With  some  this 
tendency  has  caused  a  jealousy  of  all  corporations.  But 
the  corporation  is  the  only  means  by  which  men  of  small 
means  can  enter  into  large  enterprises,  and  thus  compete 
with  wealthy  individuals.  It  is  more  than  ever  a  com- 
mercial necessity. 

And  as  large  corporations  can  serve  the  public  more 
cheaply  than  small  ones,  they  are  learning  to  combine — 
not  only  in  the  railroad  field,  but  in  many  branches  of 
manufacture.  Even  in  trade  the  large  companies,  with 
the  aid  of  cheap  express  and  postal  rates,  are  absorbing 
the  business  which  has  supported  heretofore  small  dealers 
in  many  towns  and  villages. 


44  Railway  Practice. 

But  is  the  size  of  a  railroad  corporation  synonomous 
with  power  to  do  public  evil? 

.  That  is  the  apprehension,  but  I  think  it  is  groundless. 
\  It  is  stated  that  with  their  wealth  they  are  able  to  bribe 
legislators.  Where  legislators  are  corruptible  it  indeed 
scarcely  requires  great  wealth  to  purchase  them.  But 
against  the  exercise  of  this  power  we  are  not  without 
barriers.  First  is  the  great  jealousy  which  exists  toward 
railroads  in  the  mind  of  the  average  voter.  Second  is 
the  growing  power  of  the  press  to  concentrate  a  public 
opinion  which  even  the  most  powerful  corporation  must 
feel.  Third,  our  forefathers  have  set  for  us  constitu- 
tional limitations  which  neither  the  bribed  legislator  nor 
the  prejudiced  voter  can  cross,  which  protect  both  rail- 
roads and  people,  each  from  the  other,  and  under  which 
there  is  no  reason  to  doubt  that  both  may  continue  to 
prosper  as  well  in  the  future  as  in  the  past. 

It  is  claimed  that  the  legislature  of  Pennsylvania  has 
belonged  body  and  soul  to  the  Pennsylvania  Railroad ; 
but  if  so,  what  have  they  done  that  is  of  public  evil?  So 
far  as  I  can  discover,  their  railroad  legislation  is  confined 
principally  to  the  mere  granting  of  charters  and  powers  to 
extend,  consolidate,  issue  securities,  and  do  such  acts  as 
railroads  can  only  do  by  special  authority.  But  there  is 
nothing  in  the  prosperity  of  the  State,  or  the  equal  freedom 
and  privileges  of  its  citizens,  to  contrast  unfavorably  with 
any  of  the  Western  States,  whose  legislatures  have  been  as 
notorious  for  hostility  to  railroad  interests  as  that  of 
Pennsylvania  has  been  for  subserviency. 

If  there  is  yet  any  single  fact,  any  law  passed  by  rail- 


Proposed  Plans  of  Reform.  45 

road  influence  in  any  state,  threatening  to  liberty  or  op- 
pressive of  the  people,  I  am  unaware  of  it,  and  Mr.  Ely  - 
and  Mr.  Hudson  weaken  their  cases  by  not  instancing  it. 
Until  such  a  basis  of  facts  can  be  shown,  I  consider  their 
predictions  of  the  loss  of  our  liberties  by  the  power  of 
railroads  as  groundless  as  they  are  vague.  \ 

I  think  the  facts  rather  indicate  that  corrupt  legislators 
are  more  apt  to  make  a  prey  of  rich  corporations  for 
purposes  of  blackmail  than  are  such  corporations  likely  to 
invade  legislative  halls  with  designs  dangerous  to  liberty. 

The  recent  case  of  the  Broadway  Surface  Railroad 
Company  will  illustrate.  For  many  years  the  great 
necessity  for  improved  transit  on  this  great  thoroughfare 
in  New  York  City  remained  unsupplied,  until  parties  were 
found  who  would  pay  liberally  for  the  charter. 

Then  only  was  the  public  want  allowed  to  be  supplied. 
The  wrong  was  not  in  the  thing  done,  but  in  the  way  of 
doing  it.  And  the  growing  power  of  the  press  and  of 
public  opinion  is  exemplified  in  the  punishment  which 
has  overtaken  all  concerned  in  it.  ^ 

I  do  not  believe,  therefore,  that  the  public  is  threatened 
with  any  such  dangers  as  Mr.  Hudson  and  Prof.  Ely 
narrate.  I  think  their  fears  are  the  result  of  entire  mis- 
apprehension. But  for  all  that  let  us  examine  their  pro- 
posed solutions  of  the  railway  problem  and  see  if  they 
promise  any  thing  better  than  we  have  at  present.  By 
way  of  criticism  I  need  do  little  more  than  quote  what 
each  one  says  of  the  other's  plan. 

As  among  the  learned  men  of  Hindostan  "  who  went 
to  see  the  elephant  though  all  of  them  were  blind,"  those 


46  Railway  Practice. 

who  respectively  cling  to  the  head  and  tail  of  the  subject 
can  refute  each  other's  errors  most  effectually  and  without 
help  from  bystanders. 

But  first  I  should  say  that,  were  they  practicable,  neither 
of  these  plans  would  be  at  all  objectionable  to  railroad 
stockholders  and  -investors.  My  limits  forbid  my  going 
into  details,  but.  either  plan,  if  successfully  carried  out, 
would  give  to  railroad  securities  something  of  the  perma- 
nent and  uniform  character  of  government  bonds.  Rates 
of  interest  in  many  cases  would  be  reduced,  but  the 
greater  certainty  of  getting  them  would  more  than  make 
up  the  loss.  So  it  is  only  from  the  standpoint  of  the 
public  that  the  proposed  plans  are  to  be  criticised. 

Prof.  Ely's  plan  is  simply  that  of  some  sort  of  govern- 
mental  control.  He  does  not  commit  himself  to  any  de- 
tail, and  he  implies  that  a  little  reform  of  political  morals 
and  methods  would  be  a  preliminary  necessity.  He 
admits  some  difficulties  and  dangers,  but  finds  ground  for 
belief  that  all  can  be  successfully  overcome  in  two  facts. 

1.  Our  own  government  manages  our  postal  affairs,  and 
generally  with  honesty  and  efficiency.    ^   \A^ 

2.  The  Prussian  government  controls  the  railway  system 
of  Prussia. 

As  to  the  first  argument,  I  would  say  that  there  is  such 
a  radical  difference  between  the  relations  to  trade  and 
commerce  of  the  postal  service  and  freight  transportation, 
that  no  parallel  can  be  drawn.  Letters  and  papers  have 
no  commercial  value.  Postal  rates  are  uniform  for  all 
distances.  No  commercial  rivalries  are  affected  by  them, 
and  little  money  is  involved  in  the  operations  of  the  de- 
partment but  the  salaries  of  the  employees. 


Proposed  Plans  of  Reform.  47 

But  in  the  transportation  of  freight,  and  the  rates 
charged  upon  it,  every  branch  of  agriculture,  manufac- 
tures, and  commerce,  with  their  infinitely  diversified 
rivalries,  is  intensely,  vitally  interested.  Rates  cannot  be 
uniform  for  all  distances  and  nearly  all  articles,  but  there 
must  be  an  infinite  and  frequently  varying  adjustment,  or 
discrimination  and  adaptation  of  rates  to  circumstances. 

An  illustration  will  make  this  clearer. 

With  the  invention  and  improvement  of  refrigerator  cars 
a  new  business  has  recently  sprung  up — the  shipping  of  \ 
dressed  beef  from  the  West.  Eastern  butchers  who  bring 
their  cattle  on  the  hoof  and  have  heavy  investments  in 
stock-yards  and  abattoirs  are  threatened  with  destruction. 
Large  sums  of  money  and  the  livelihood  of  thousands  of 
employees  are  involved  in  the  comparative  rates  to  be 
charged  for  dressed  beef  and  live  cattle. 

With  such  questions  the  postal  department  has  no 
concern  whatever. 

But  suppose  that  a  bureau  of  elected  or  selected  officials 
had  the  fixing  of  those  comparative  rates.    What  a  battle-  \ 
ground  would  their  offices  be  !    What  bribes  would  be  of-  ^ 
fered,  and  when  the  terms  of  office  expired  what  strenuous 
efforts  by  the  disappointed  party  to  change  the  officials ! 

This  illustration  is  but  one   of  thousands  that  might 
be  given,  and  it  will  serve  to  illustrate  another  very  im-   \ 
portant  point  to  be  borne  in  mind.      It  is  that  there  is 
no  abstract  principle  of  right  or  wrong,  or  honesty  or  dishon- 
esty, to  which  such  questions  can  be  referred. 

My  limits  prevent  my  giving,  by  way  of  illustration, 
what  can  be  said  on  each  side  of  the  dressed-beef  ques- 


48  Railway  Practice. 

tion,  but  any  intelligent  person  can  doubtless  imagine 
a  good  deal.  In  one  respect  the  question  is  not  unlike 
one  which  has  recently  vexed  Congress — that  between 
oleomargarine  and  butter.  It  is  one  between  vested  in- 
terests and  new  industries  which  encroach  upon  them. 
The  bitterness  of  such  contests  and  the  extent  to  which 
partisans  will  go  while  engaged  in  them  is  well  known. 
Usually  the  older  industry  will  have  the  best  of  it  if  the 
matter  can  in  any  way  be  brought  within  range  of -govern- 
mental action. 

Here  the  political  strength  of  the  older  interest  was 
able  to  drag  it  into  Congress,  which  promptly  strangled 
oleomargarine,  the  younger  industry.  Or  a  better  meta- 
phor would  be  to  say  Congress  poisoned  it.  For  under 
the  constitution  Congress  has  no  power  to  strangle  any 
infant  industry,  however  repugnant  its  features  may  be  to 
the  older  members  of  the  family.  But  for  purposes  of 
revenue  it  has  the  right  to  prescribe  a  revenue  tax  upon 
any  product.  Although  already  embarrassed  with  surplus 
revenue,  Congress  deliberately  prescribed  an  overdose  of 
revenue  tax  for  oleomargarine.  No  pretext  was  made 
that  it  was  for  any  other  purpose  than  to  kill,  and  the 
strength  of  the  dose  was  carefully  estimated  to  produce 
that  result.  Now,  however  much  we  may  all  personally 
prefer  butter,  it  is  a  very  significant  fact  that  the  moneyed 
interest  involved  in  this  contest  has  led  Congress  to  violate 
a  plain  provision  of  the  Constitution.  That  has  been  done 
indirectly  and  by  the  perversion  of  powers  given  for  other 
purposes,  which  it  was  openly  admitted  could  not  be  done 
directly. 


Proposed  Plans  of  Reform.  49 

A  later  development  of  this  matter  is  also  interesting 
and  instructive.  From  several  quarters  of  the  country 
come  rumors  that  the  oleomargarine  interests  have  raised 
campaign  funds  and  are  in  the  field  to  secure  the  election 
of  certain  candidates  for  Congress  or  the  defeat  of  certain 
other  candidates. 

Will  not  some  modern  George  Stephenson  arise  and 
say,  "the  state  must  control  oleomargarine  or  oleomar- 
garine will  control  the  state !  "  Or  should  the  aphorism 
relate  rather  to  butter  ?  But  the  moral  of  all  seems  to  me 
very  plain.  It  is  no  small  task  to  keep  our  political 
administration  pure  even  when  its  activities  and  duties 
are  limited  to  the  most  essential  functions,  such  as  pre- 
serving the  peace,  transporting  the  mails,  providing  for 
national  defence,  and  such  matters  of  vital  necessity  for 
the  body  politic.  But  that  task  will  become  utterly  hope- 
less whenever  Congress,  a  bureau,  or  any  governmental 
agency  is  charged  with  the  decision  of  the  questions 
involved  in  commercial  rivalries,  such  as  that  between 
dressed  beef  and  live  cattle.  Many  of  these  questions 
too,  it  must  be  noted,  tend  to  bring  about  sectional  issues, 
such  as  those  involving  the  differential  rates  to  be  charged 
to  and  from  Boston,  New  York,  Philadelphia,  Baltimore, 
Norfolk,  Charleston,  etc.,  and  the  competing  points  in  the 
interior. 

But  my  limits  will  not  allow  further  remark  upon  this 
line,  as  I  wish  to  notice  very  briefly  Prof.  Ely's  reference 
to  the  Prussian  governmental  railroad  management. 

I  do  not  profess  to  know  a  great  deal  about  it  further 
than  that  the  geographical,  political,  and  commercial 


5O  Railway  Practice. 

situation  is  very  different  from  our  own.  Prussia  is  small 
and  finished.  We  are  very  large  and  growing.  There  it 
is  a  recognized  governmental  duty  to  look  after  and  take 
care  of  the  people.  Here  the  people  take  care  of  them- 
selves, and  it  is  our  theory  that  free  competition  will 
work  out  the  best  results  possible  to  human  nature. 

I  recently  heard,  incidentally,  a  single  illustration  of  the 
workings  of  the  Prussian  system,  which  seems  to  me  to 
indicate  that  it  would  be  ill  adapted  to  our  wants. 

About  1883,  the  wire  manufacturers  of  Westphalia 
applied  for  a  reduction  of  certain  rates  which  placed  them 
at  a  disadvantage  in  competition  with  manufacturers  else- 
where. This  request  went  up  through  regular  channels, 
and  commissions  were  appointed,  and  reports  made  and 
submitted  to  higher  authorities,  and  counter  arguments 
were  made  by  rival  manufacturers,  and  testimony  was 
taken,  and  every  thing  was  printed  in  a  large  volume. 
After  two  years  consumed  by  all  this  the  request  for 
lower  rates  was  refused. 

There  is  however  one  part  of  the  subject  which  Mr. 
Ely  has  apprehended  very  clearly,  and  which  I  refer  to 
as  bearing  upon  what  I  have  said  upon  the  subject  of 
consolidations  and  poolings.  He  recognizes  that  only  by 
means  of  combination  and  concentration  can  the  trans- 
portation business  of  the  country  be  conducted  effectively 
and  cheaply,  and,  instancing  the  purchase  of  the  West 
Shore  Railway  by  the  New  York  Central,  he  states  that 
the  indignation  of  the  press  and  public  over  this  consoli- 
dation is  more  foolish  than  that  of  the  laboring  men  who 
resist  the  introduction  of  improved  machinery.  He  says : 


Proposed  Plans  of  Reform.  5 1 

"  The  impulse  to  such  great  economies  as  can  be  secured  by 
combination  is  irresistible.  It  is  one  of  those  forces  which 
overwhelm  the  man  who  puts  himself  against  them." 

But  upon  Mr.  Ely's  general  proposition  of  govern- 
mental control  I  can  submit  no  better  comments  than 
those  of  Mr.  Hudson : 

"  A  conclusive  argument  against  the  operation  of  railways  by 
the  state  is  that  it  would  introduce  into  our  politics  a  vast 
amount  of  patronage,  which  must  largely  become  the  spoil  of 
professional  politicians. 

"  If  the  present  business  of  the  government,  involving  the 
collection  and  distribution  of  about  $300,000,000,  cannot  be 
administered  with  a  view  solely  to  efficiency  and  economy,  but 
is  used  as  the  reward  of  skill  in  swaying  the  popular  vote,  any 
reformation  of  our  politics  would  be  made  utterly  helpless 
if  that  patronage  were  increased  by  an  interest  involving 
$900,000,000  additional  gross  revenue,  controlling  nearly 
$4,000,000,000  of  property,  and  exercising  a  power  over  the 
business  interests  of  the  country,  beside  which  that  of  po- 1/ 
litical  parties  is  now  trifling.  When  our  politics  are  purified 
so  as  to  exclude  from  them  sefish  ends  and  improper  means, 
it  may  be  possible  to  bring  the  railways  under  political  control 
without  making  them  a  source  of  general  corruption.  But 
when  such  a  millennial  stage  in  human  progress  is  reached 
there  will  be  no  need  of  railway  or  other  reform. 

"At  present,  whenever  railway  management  is  closely  con- 
nected with  politics,  it  leads  to  bribery,  manipulation,  and  be- 
trayal of  public  trust. 

"All  means  of  corruption  would  be  multiplied  by  making 
that  connection  universal  and  permanent,  and  converting  the 


52  Railway  Practice. 

control  of  the  railways  into  the  prize  and  sustenance  of  poli- 
ticians and  wire-workers. 

"  Apart  from  the  danger  to  public  morals  of  a  state  railway 
system,  what  guaranty  is  there  that  it  would  act  with  more 
impartiality  and  justice  than  private  corporations  ?  Why 
should  political  control  be  more  unselfish  and  equitable  in 
managing  transportation  than  private  control  ? " 

Mr.  Hudson's  theory  of  reform  is  exactly  the  opposite 
of  Mr.  Ely's.  He  proposes  to  take  away  from  the  rail- 
roads their  engines  and  cars,  and  leave  them  simply  the 
right  to  maintain  their  tracks,  and  charge  toll  to  a  multi- 
tude of  small  private  carriers  who  would  each  own  his  own 
rolling  stock.  Governmental  commissions  would  regulate 
the  tolls  each  road  should  be  allowed  to  charge,  and  Mr. 
Hudson  makes  rough  calculations  what  such  figures  might 
be.  They  vary  from  0.189  cent  per  ton-mile  upon  the 
Pennsylvania,  and  0.431  upon  the  Erie,  to  2.42  upon  the 
Denver  and  Rio  Grande.  It  seems  incredible  that,  having 
gone  this  far  in  his  calculation,  he  did  not  perceive  that 
with  such  a  difference  of  rate  between  the  Erie  and 
the  Pennsylvania,  the  through  business  would  all  imme- 
diately desert  the  Erie  and  go  to  the  latter  road. 

This  increased  traffic  would  enable  the  Pennsylvania  to 
make  a  further  reduction  of  tolls,  and  the  decrease  on  the 
Erie  would  force  it  to  charge  still  higher  rates  in  order  to 
maintain  its  track  in  order  even  for  local  business.  But 
it  is  unnecessary  to  follow  out  the  obvious  complications 
which  would  ensue  from  any  attempt  to  base  a  transporta- 
tion system  for  the  country  upon  a  system  of  tolls  for  the 
use  of  highway. 


Proposed  Plans  of  Reform.  53 

Professor  Ely  comments  upon  Mr.  Hudson's  plan  as 
follows  : 

"  The  second  plan  is  that  of  Mr.  Hudson — the  separation  of 
railway  ownership  from  the  business  of  transportation. 

"  The  idea  is  that  the  railway  should  become  a  public  high- 
way, and  should  be  compelled  to  allow  all  persons  to  run 
freight  and  passenger  cars  with  locomotives  over  it,  provided 
only  that  these  be  placed  under  proper  supervision  to  prevent 
accident,  and  that  a  reasonable  toll  be  paid.  This  is  the 
theory  that  obtained  universally  in  the  first  days  of  the  rail- 
way, and  it  is  doubtless  this  theory  that  led  to  the  decision  in 
Holland  to  intrust  to  the  state  the  construction  of  the  railway, 
and  to  allow  private  parties  to  take  charge  of  the  transportation 
of  passengers  and  goods.  Perhaps  the  strongest  plea  in  favor 
of  this  theory  is  to  be  found  in  Mr.  Hudson's  book,  but  no  in- 
stance can  be  adduced  of  any  practical  success  in  the  applica- 
tion of  this  proposed  method,  and  it  is  difficult  to  see  any  thing 
further  in  this  restatement  of  the  arguments  for  a  separation 
between  the  ownership  of  the  highway  and  the  business  of  a 
common  carrier  than  the  lengths  to  which  an  able  man  may 
be  driven  who  once  determines  to  adhere  at  all  costs  to  the 
doctrines  of  universal  competition. 

******* 

"  Why  is  there  not  now  competition  in  the  express  business  ? 
We  observe  a  monopoly,  express  companies  having  divided 
territory,  although  this  does  not  at  all  seem  to  be  due  to  the 
character  of  our  laws.  Competition  has  been  attempted  be- 
tween Baltimore  and  New  York,  but  the  Adams  Express 
Company  has  crushed  it.  An  old-established  company,  with 
wide  ramifications  and  large  capital,  will  even  do  business  for 
nothing,  between  two  main  points,  for  a  time,  to  ruin  an 


54  Railway  Practice. 

obnoxious  rival,  and  will  maintain  its  life  from  other  revenues, 
and  look  to  a  free  field  in  the  future  for  profits.  If  the  sepa- 
ration suggested  was  effected,  what  guaranty  have  we  that 
similar  phenomena  in  the  transportation  of  freight  would  not 
manifest  themselves  ?  Again,  there  is  great  economy  and 
convenience  in  the  conduct  of  the  transportation  of  freight 
and  passengers  by  those  operating  on  a  vast  scale,  whether 
they  own  the  tracks  or  not,  and  this  gives  to  that  industry  its 
inherent  and  irresistible  impulse  toward  monopoly,  and,  as 
already  remarked,  we  desire  these  advantages.  It  is  not  clear 
that  the  technical  difficulties  of  railway  management  do  not 
interpose  other  and  insuperable  obstacles  to  the  plan  proposed 
by  Mr.  Hudson." 

It  seems  unnecessary  to  say  more  upon  this  head  except 
as  to  the  technical  difficulties  referred  to  in  Mr.  Ely's  last 
sentence  quoted  above.  One  is  of  such  magnitude  that  it 
is  surprising  that  Mr.  Hudson  overlooked  it.  It  might  be 
possible,  indeed,  that  the  railroad  company  might  not  only 
provide  the  track,  but  maintain  a  schedule  for  trains,  and 
a  train-dispatcher's  office,  which  would  prevent  collisions 
and  interference  of  the  trains  of  different  carriers  while  on 
their  journeys.  It  could  scarcely  be  as  safe  as  the  pres- 
ent system,  but  we  may,  forsake  of  the  argument,  imagine 
difficulties  of  that  kind  overcome.  But  it  must  ever  re- 
main impossible  for  many  rival  carriers  to  occupy  the  same 
depots  and  make  up  their  trains  with  shifting  engines  in  the 
same  yards.  Each  carrier  must  have  his  own  yards  and 
terminal  facilities.  But  available  space  for  such  facilities 
in  our  large  cities  can  only  be  had  at  enormous  expense. 
A  few  large  transportation  companies  would  speedily  be 


Conclusion.  5  5 

formed,  who  would  monopolize  the  entire  transportation 
business  of  the  country.  Small  carriers  could  not  possibly 
gain  or  maintain  a  footing  against  them.  And  the  large 
companies  would  speedily  unite,  and  pool  or  divide  terri- 
tory. If  Mr.  Hudson  had  set  out  to  devise  a  plan  by 
which  the  transportation  interests  of  the  United  States 
could  be  most  rapidly  consolidated  into  the  most  com- 
plete and  irresponsible  monopoly  possible,  he  could  not 
have  suggested  any  thing  half  so  certain  and  speedy  of 
operation  as  what  he  has  suggested  to  bring  about  the 
very  opposite  result. 

CONCLUSION. 

I  have  spoken  so  far  of  the  railway  problem  as  involving 
only  the  principles  upon  which  tariffs  are  formed  and 
competition  between  water  lines  and  rival  railroads  is 
conducted. 

But  there  is  a  second  and  a  very  different  problem, 
which  is  confused  with  this  in  the  minds  of  the  public 
and  of  many  writers. 

This  second  problem  is  purely  a  social  one.  I  do  not 
propose  to  discuss  it,  but  only  to  set  it  clearly  by  itself 
apart  from  the  railway  problem,  with  which  it  should  have 
no  connection. 

It  is  the  question,  what  is  to  be  done,  if  any  thing, 
about  the  accumulation  of  very  large  individual  fortunes. 
It  is  commonly  assumed  that  these  fortunes  are  drawn 
principally  from  the  community  of  producers  and  con- 
sumers by  transportation  charges,  and  accumulated  by 
the  lucky  owners  of  railroad  stock.  In  reality  there  are 


5  6  Railway  Practice. 

perhaps  fewer  fortunes  so  accumulated  than  are  gained  on 
the  average  in  trade  or  manufactures.  But  the  great  ma- 
jority of  the  phenomenal  fortunes  of  the  day  are  the 
result  of  what  may  be  called  lucky  gambling.  I  do  not 
/  mean  to  imply  any  necessary  moral  obliquity  by  the  term 
gambling,  for  it  would  be  a  difficult  task  to  draw  the  line 
between  what  is  called  speculating  and  is  considered  re- 
spectable, and  what  is  disreputable  as  gambling.  But 
speculating  implies  a  slower  mode  of  procedure  than 
prevails  nowadays  with  our  exchanges,  our  network  of 
wires,  our  tickers,  and  our  general  business  rush.  Man  is 
a  gambling  animal  by  nature,  and  modern  methods  have 
enormously  developed  both  its  facilities  and  temptations, 
and  have  opened  large  fields  in  which  gambling  is  not  held 
to  be  disreptuable.  Under  such  stimulus  is  it  wonderful 
that  its  growth  has  been  phenomenal  ?  Wall  Street  is  its 
headquarters,  and  millions  upon  millions  of  dollars  are 
accumulated  there  to  meet  the  wants  of  the  players.  It 
has  become  the  centre  of  the  financial  affairs  of  the 
country,  as  it  is  always  ready  to  employ  any  idle  capital. 
Railroad  stocks  are  its  favorite  cards  to  bet  upon,  for  their 
*  valuables  are  liable  to  constant  fluctuations,  on  account  of 
weather,  crops,  new  combinations,  wars,  strikes,  deaths, 
and  legislation.  They  can  also  easily  be  affected  by  per- 
sonal manipulations.  Other  things  are  dealt  with  as  well, 
such  as  cotton,  grain,  petroleum,  metals,  etc.,  but  the 
more  active  cards  and  the  more  rapid  fluctuations  are  the 
most  popular. 

In  such  tremendous  gambling  large  gains  necessarily 
/  come  to  the  lucky  by  the  simple  theory  of  chances.    And 


Conclusion.  57 

when  once  a  man  is  lucky  enough  to  secure  a  considerable 
sum  he  is  not  so  easily  wiped  out  by  temporary  misfor- 
tune as  the  new-comer,  and  with  larger  stakes  he  can  play 
safer  games.  And  so  the  fortunes  started  by  luck  after- 
ward grow  by  the  inherent  and  attractive  power  of 
money.  But  the  money  which  composes  them  is  the 
money  won  from  the  unlucky,  and  not  the  money,  or  in  very 
small  part  that,  earned  by  the  railroads  for  transportation. 
More  and  more  every  year  are  men,  from  all  parts  of 
the  country,  taking  their  surplus  earnings  in  trade,  in 
manufactures,  in  farming,  and  in  all  their  multifarious  pur- 
suits, and  bringing  them  into  Wall  Street  to  bet  upon 
railroad  cards.  There  is  but  one  consolation  about  it :  no 
man  is  obliged  to  contribute  to  these  fortunes  who  does 
not  choose  to  risk  it.  However  alluring  it  may  be,  the 
man  who  resists  its  temptations  can  always  keep  his  own 
money. 

Our  forefathers  who  framed  the  Constitution  evidently 
thought  the  accumulation  of  very  great  individual  for- 
tunes an  evil  to  be  guarded  against,  and  they  took  action 
to  prevent  it  by  forbidding  the  entailing  of  estates  beyond 
the  second  generation.  In  those  days  it  was  imagined 
that  even  in  two  generations  no  excessive  fortune  could 
be  accumulated.  But  our  modern  methods  have  made  a 
very  different  world  from  what  then  existed. 

Fortunes  are  now  made  in  a  few  years  which  could 
scarcely  have  been  accumulated  in  generations  a  century 
ago.  Even  the  Rothschilds  are  now  said  to  be  nearly 
equalled  by  men  who,  thirty  years  ago,  were  poor,  but 
who  have  been  lucky  in  enormous  speculations. 


58  Railway  Practice. 

Money  makes  money,  and  money  in  great  masses  has 
its  attractive  power  increased. 

The  aspect  of  phenomenal  fortunes,  therefore,  is  a 
social  problem  of  some  importance.  Their  manner  of 
growth  and  their  manner  of  use  are  to  be  observed,  and 
what  restrictions,  if  any,  should  be  placed  upon  their  ac- 
cumulation are  to  be  considered. 

But  I  only  desire  here  to  draw  the  line  sharply  between 
these  questions  and  those  involved  in  the  making  of  tariffs 
and  conducting  competition.  The  latter,  indeed,  are 
hardly  any  longer  to  be  called  questions. 

Wherever  in  the  world  railroad  transportation  is  con- 
ducted upon  a  large  scale,  commercial  necessities  have  en- 
forced the  adoption  of  the  principles  I  have  endeavored 
to  make  clear,  and  their  adoption  has  everywhere  been 
marked  by  better,  cheaper,  and  more  uniform  service. 
These  universal  features  of  railway  practice  may  in  fact 
be  called  it3  "adaptations  to  environment."  They  are 
as  sure  to  assert  themselves  as  the  laws  under  which 
water  crystallizes  in  fixed  shapes,  wherever  and  however 
it  may  be  frozen.  They  are  essential  features  of  any 
transportation  service  adequate  to  the  present  needs  of 
commerce.  I  will  sum  them  up  briefly : 

Railway  tariffs  must  be  based  upon  value  of  service 
rendered,  and  limited  by  a  reasonable  profit  upon  cost  of 
service  and  investment  employed.  In  other  words,  they 
may  be  said  to  be  bounded  above  by  the  line  of  reasonable 
profits,  and  below  by  "  what  the  traffic  will  bear." 

This  lower  limit,  in  adjusting  itself  to  innumerable  con- 
ditions produces  discrimination  between  things  and  dis- 


Conclusion.  59 

crimination  between  places,  even  to  the  extent  of  some- 
times giving  the  lowest  rate  to  the  longest  haul. 

Legislation  against  such  discrimination  is  legislation 
against  the  competition  which  produces  it — usually  the 
competition  of  rail  lines  with  water  lines. 

Discrimination  between  individuals  similarly  situated 
is  unjustifiable  and  harmful. 

It  is  so  easily  concealed  that  direct  legislation  against^ — 
it  is  not  effective. 

It  can  only  be  abolished  by  removing  the  temptation  to 
commit  it.  This  can  only  be  done  by  division  of  terri- 
tory, by  pooling,  or  by  consolidation. 

Division  of  territory  is  scarcely  practicable  in  the  United 
States. 

The  commerce  of  the  country  could  not  exist  under  a 
multitude  of  small  carriers.  Among  such,  instability  and 
uncertainty  of  rates  and  the  existence  of  rebates  would 
be  perpetual.  A  merchant  desiring  to  ship  goods  would 
have  to  go  shopping  for  his  rates  as  ladies  do  for  their 
bonnets.  The  rates  would  vary  in  different  shops,  and 
from  day  to  day  in  the  same  shop.  Stability,  publicity, 
and  uniformity  of  rates  can  only  exist  where  there  is  a 
community  of  interest  between  the  carriers.  This  com- 
munity can  only  exist  under  a  pool  or  under  consolidation. 

Pooling  has  had  a  measure  of  success  sufficient  to  war- 
rant some  confidence  and  further  trial.  The  apprehension 
that  either  pooling  or  consolidation  results  in  extortionate 
rates  is  conclusively  contradicted  by  results. 

.  Consolidations  promote  economy  and  efficiency.    Their 
political  power  is  limited  by  jealousy  of  the  press  and 


60  Railway  Practice. 

popular  prejudices.  At  best,  its  field  of  action  is  con- 
fined to  procuring  charters,  powers  to  issue  securities,  and 
such  privileges  incidental  to  its  business  as  can  only  be 
acquired  by  legislation.  It  is  more  apt  to  be  preyed  upon 
than  to  prey. 

'  And,  finally,  there  are  constitutional  limitations  upon 
the  power  both  of  railroad  wealth  and  of  popular  preju- 
dices, upon  which  public  confidence  may  repose  calmly. 
Hedged  in  and  compelled  by  these  barriers,  the  people 
and  the  railroads  are  daily  learning  the  lesson  that  their 
interests  are  identical,  and  the  prosperity  of  the  one  is 
inseparably  bound  up  with  that  of  the  other.  The  rela- 
tion between  them  of  "  master  and  slave,"  advocated  by 
Prof.  Ely,  would  be  one  of  universal  disaster,  and  is  impos- 
sible of  permanent  existence.  Prophets  of  such  evil  should 
be  ranked  with  those  who  predict  earthquakes  and  tempests 
from  the  planetary  aspects.  Our  plan  of  government  is  no 
failure,  our  fathers  built  not  badly  or  weakly,  and  under 
the  free  operation  of  commercial  laws  we  are  to-day  lead- 
ing the  world  in  cheap  and  efficient  transportation  as  Ave 
are  in  the  general  prosperity  inseparable  from  it.  There 
are,  of  course,  inequalities  in  human  lots  and  hardships  in- 
separable from  that  great  struggle  for  existence  through 
which  it  is  ordained  that  all  development  of  better  results 
shall  come.  But  we  can  hopefully  await  such  development. 


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THE    LITERARY    LIFE    SERIES. 


VOL  I.— AUTHORS    AND    AUTHORSHIP. 


The  Literary  Life. 
The  Chances  of  Literature. 
Concerning  Rejected  MSS. 
The  Rewards  of  Literature. 
Literature  as  a  Staff. 
Literature  as  a  Crutch. 


CONTENTS  : 

Some  Literary  Confessions. 
First  Appearance  in  Print. 
Literary  Heroes  and  Hero- Worship. 
Some  Successful  Books. 
The  Seamy  Side  of  Letters. 
Literary  S/ 


The  Consolations  of  Litej 

VOL.  II.— PEN  PICTURES  OF/ 


Thomas  Carlyle. 
George  Eliot. 
John  Ruskin. 
John  Henry  Newman. 
Alfred  Tennyson. 
Ralph  Waldo  Emerson. 
William  Cullen  Bryant. 
Longfellow  and  Whittier, 


VOL.  Ill 


Literar 

Euwa. 

Benjamu/1  _ 

Thomas  Babington  Macaulay. 


AUTHORS. 


scar  Wilde. 


ice  Thackeray 

c  "* 

R   VICTORIAN 


i-onte. 

jton  Irving. 
Allan  Poe. 
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